Fakeout In Crypto: Its Indicators And How Minimise Losses?

Several times, you purchase a coin expecting a rise in price and a subsequent profit. However, the expected does not happen, resulting in a considerable loss. As a beginner in crypto trading, this may not be very clear to you. 

So read on to find out how to identify those situations and minimise your losses in such cases.

What is fakeout?

Fakeout is the technical term used to define the situation when a trader anticipates a rise in the price of a coin, but that does not happen. Instead, the price reverses considerably, and traders encounter extensive losses. Fakeout, in common terms, means 'false breakout' or 'fake breakout'. However, the prices often reverse shortly after the fakeout.

What are the indicators of fakeout?

A trader has to bear considerable losses during a fakeout. So it is better to follow certain indicators to predict a fakeout and manage trade accordingly. Few technical charts are available for study, which will help you foresee a fakeout. These are available on different channels, such as:

1. Envelop channels: These channels provide a fluctuation pattern for a longer timeframe. They usually provide information regarding a coin's maximum and minimum price range. It is more reliable since a trader can get a broader and clearer view and easily make the right decisions.
2. Trend channels: These are other channels that equip a trader with data over a shorter timeframe. Solely following these channels is risky since it does not reflect the price reversals for a coin.

How to stay prepared for fakeout?

Fakeout is unforeseeable. However, you can take steps to stay prepared for a fakeout. These include:

1. Before entering the trade, use the stop-loss order.
2. Fix a trading strategy after consulting with various technical analysts.
3. You can also determine a strategy on your own after analysing previous ones.
4. Invest only 1% of the trading capital for one coin. 

How to minimise losses during fakeouts?

It becomes essential for the trader to know the proper steps to take if they encounter a fakeout. You can easily take the following measures to lessen your losses: 

1. Resist trading against the trend.
2. Wait till there is a pause in the price drop.
3. Resume trading when the price reverses. 
4. Plan your exit at the right time. 

Fakeout can occur anytime. So it becomes imperative to be fully prepared for the situation instead of panicking or making any wrong move. Awareness about fakeouts and their solutions would help you manage your trade effectively under such circumstances.