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𝐇𝐎𝐖 𝐓𝐎 𝐀𝐕𝐎𝐈𝐃 𝐅𝐚𝐤𝐞𝐨𝐮𝐭𝐬 & 𝐈𝐧𝐝𝐮𝐜𝐞𝐝 𝐒𝐞𝐥𝐥𝐢𝐧𝐠:
𝐀 𝐭𝐡𝐫𝐞𝐚𝐝🧵

Let's understand with some examples.

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1⃣What is FAKEOUT/INDUCED SELLING?

A breakout/breakdown that failed to continue beyond a key resistance/support level, resulting in a ‘false’ breakout/breakdown of that level.

2⃣Some reasons for FAKEOUTS

1. To trap amateurs/weak hands.
2. Because of weak market depth.
3. To fill large orders of big Institutions (Liquidity).
4. To trap FOMO traders.

3⃣Common things you'll notice after Fakeout:

1. Big body candles on opposite side due to reverse order flow.
2. High chances of trending market on opposite side of fakeout.
3. Fakeout S/R will become stronger coz of Big players' SLs.
4. RBD / DBR candlestick pattern.

4⃣Ways to avoid FAKEOUT/INDUCED SELLING

🔸Always wait for candle closing

When any candle breaches stiff S/R levels in first few mins then chances are high that it's inviting FOMO traders. To avoid this trap, it's better to wait for the closing above S/R level.

🔸Avoid breakout after trending market

If market is continuously in momentum then most probably it will retrace near it's key levels coz of exhaustion.

For e.g., A runner is running without taking any rest then chances are high that he won't be able to cover large distance.

🔸Long body candle breaking S/R from distance

When a long body candle directly breaches S/R then chances of FAKEOUT are there coz the trader who entered at the bottom of the candle, will see instant gains so, he will book profits hence we will see a wick formation at the S/R.

🔸Missing of Volume follow up

If a BO is not supported by volumes then chances are high that market participants are not interested in that direction.

Breakout candle generally form with volume coz of SLs orders so we need to check follow up volume as well for a successful BO.

🔸Directly breaking psychological/round levels

Round no.s act as S/R levels.

If a particular stock is in FnO then at round no, OI will also be generated.

So, always wait for price to sustain above/below that level.

A single candle sustain is not enough for successful BO.

🔸Marking levels on HTFs

Generally, market breaks the level on STF but forms wick on HTF, this is coz, we missed out to check S/R levels on HTF.

So, multi-time frame analysis is important for marking key S/R.

🔸Contra BO/BD in opposite strong trend

When market is in either strong uptrend/downtrend and any contra BO is seen then it it just a factoral retracement on HTF that moves back to trending direction after fakeout.

There are many other ways to avoid Fakeouts with the help of indicators and tools.

✅Indicators may start loosing strength or will show divergence at time of FAKEOUT.

✅Not appropriate order flow/volume profile, etc.

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