Buzzword of the Week: Fakeout

I love browsing through the Dictionary on the Investopedia website. I am forever running into financial terms I’d not heard of before. While browsing recently, I came on the term “Fakeout.”

It turns out that Fakeout is a term used in technical analysis to refer to a situation in which a trader enters into a position in anticipation of a future transaction signal or price movement, but the signal or movement never develops and the asset moves in the opposite direction.

The possibility for Fakeouts is the reason why traders should use more than one indicator to make decisions. To reduce the probability of being faked out, experienced traders will require four or more signals to confirm a decision.

photo credit: Great British Circus, UK 2012 via photopin (license)

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