DEFINITION of 'Fakeout'

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.

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    Moving Average Convergence Divergence (or MACD) is a trend-following ...
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    A false signal that the rising trend of a stock or index has ...
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