Fakeout Definition
A fakeout is a form of trading in which an asset’s price suddenly moves sharply up or down, only to quickly revert back to its original level. Fakeouts are a common occurrence in the cryptocurrency market due to its high volatility and unpredictable nature.
The Purpose Of A Fakeout
The purpose of a fakeout is typically either speculative or manipulative. Speculative fakeouts occur when traders attempt to predict where the market will move by trying to anticipate changes in sentiment amongst other traders. Manipulative fakeouts, on the other hand, usually involve large institutional investors who have sufficient capital and influence to temporarily push prices in whatever direction they choose for their own benefit.
Risk Factors Involved With Fakeouts
Trading with a fakeout carries considerable risk as it can be difficult for even experienced traders to accurately predict where the markets will go next. This means that those who trade based on false signals may end up losing substantial amounts of money if their predictions turn out wrong. For this reason, it is important for all investors—especially beginners—to exercise caution when trading with highly volatile assets like cryptocurrencies and always use stop-loss orders when appropriate so that any losses can at least be mitigated somewhat. Additionally, understanding how different types of news events could potentially affect price movements can help reduce one’s exposure to potential losses caused by unexpected surges or crashes in prices during times of high volatility such as after major announcements from exchanges or government regulatory bodies regarding cryptocurrency legislation/policies etc.