Fakey Trading Strategy [Inside Bar False Break Out]

A price action pattern-based approach

Aug 7, 2023 Nitin P

Fakey Trading Strategy [Inside Bar False Break Out]

The Fakey Trading Strategy, also known as the Inside Bar False Break Out strategy, is a price action pattern-based approach used by traders to identify potential reversal and continuation trading opportunities. This strategy relies on a combination of inside bars and false breakouts to capture market movements.

Here's how the Fakey Trading Strategy works:

1. Inside Bar Formation: An inside bar is a candlestick pattern where the entire price range (high to low) of one candle is inside the range of the preceding candle. This indicates a period of consolidation or indecision in the market.

2. False Breakout: The strategy revolves around the concept of a "false breakout." This occurs when the price initially breaks out of the range of the inside bar but then reverses and closes back within the range of the inside bar. The false breakout traps traders who entered the market on the breakout, leading to a reversal.

3. Entry and Stop Loss: After the false breakout, traders enter a trade in the opposite direction of the initial breakout, anticipating a reversal. For a bullish Fakey, traders enter a long position above the high of the inside bar, placing a stop-loss order below the low of the inside bar. For a bearish Fakey, traders enter a short position below the low of the inside bar, with a stop-loss above the high of the inside bar.

4. Target and Risk Management: Traders often use a risk-to-reward ratio to set their profit targets. For example, if the stop-loss is 50 pips away, the profit target might be set at a distance that offers a 2:1 or 3:1 reward-to-risk ratio. Traders can also consider trailing their stop-loss as the trade moves in their favor.

5. Confirmation and Additional Factors: While the Fakey pattern itself can provide a valuable signal, traders may enhance their analysis by considering additional factors. These could include trend direction, support, and resistance levels, and the overall market context.

It's important to note that not all inside bars with false breakouts will lead to successful trades. Like any trading strategy, Fakey requires practice, experience, and risk management. Traders should use proper position sizing and consider their overall trading plan when implementing the strategy.

As with any trading approach, it's recommended to test the Fakey strategy on historical data and practice in a demo trading environment before applying it to real-money trading. Additionally, traders should stay updated on market conditions and continuously refine their strategy based on their observations and results.

Here are some additional tips for trading the fakey pattern:

• Use multiple time frames: It is best to use multiple time frames to confirm the fakey pattern. For example, you could use a 4-hour chart to identify the inside bar pattern and a 1-hour chart to confirm the breakout and reversal.
• Use a stop loss: Always use a stop loss to limit your losses in case the trade goes against you.
• Be patient: Don't enter a trade just because you see a fakey pattern. Wait for the price to close back inside the inside bar range before entering a trade.
• Practice on a demo account: Before you start trading with real money, it is important to practice on a demo account. This will allow you to learn how to trade the fakey pattern and to develop your trading skills.

FAQ on 'Fakey Trading Strategy [Inside Bar False Break Out]'

know the answers to most commonly asked questions

August 7, 2023 Nitin P

What is the Fakey Trading Strategy?

The Fakey Trading Strategy, also known as the Inside Bar False Breakout strategy, is a price action-based approach that involves trading reversals after a false breakout of an inside bar pattern. Traders enter positions in the opposite direction of the initial breakout, aiming to capitalize on potential market reversals.

What is an inside bar?

An inside bar is a candlestick pattern where the high and low of a candle are contained within the high and low of the previous candle. It suggests a period of consolidation or indecision in the market.

How does the strategy work?

The strategy involves waiting for a false breakout of the inside bar pattern. Traders enter a trade in the direction opposite to the initial breakout once the price reverses and closes back within the range of the inside bar. This is seen as a potential reversal signal.

How is the entry point determined in the strategy?

For a bullish Fakey, traders enter a long position above the high of the inside bar. For a bearish Fakey, traders enter a short position below the low of the inside bar. These entry points are based on the assumption that the reversal will gain momentum after the false breakout.

What is a false breakout?

A false breakout occurs when the price briefly moves beyond a support or resistance level (in this case, the inside bar's range) but then reverses and closes back within that range. It traps traders who entered the market on the breakout.

What factors should traders consider before using the strategy?

Traders should consider the overall trend, key support and resistance levels, and the market context before using the Fakey strategy. Confirmation from other technical tools or indicators can enhance the validity of the trade setup.

How is risk management handled in this strategy?

Traders typically use a stop-loss order placed beyond the high or low of the inside bar, depending on the trade direction. The profit target is often set based on a risk-to-reward ratio, ensuring that potential profits outweigh potential losses.

Is the Fakey Trading Strategy suitable for all market conditions?

The Fakey strategy works best in markets with clear trends and well-defined support and resistance levels. It may be less effective in ranging or choppy markets.

Can I use the Fakey strategy in combination with other strategies or indicators?

Yes, traders often combine the Fakey strategy with other technical analysis tools, such as trendlines, moving averages, or momentum indicators, to increase the accuracy of their trading decisions.

Is the Fakey strategy suitable for beginners?

The Fakey strategy requires a solid understanding of price action and chart patterns. Beginners are advised to practice and gain experience with simpler trading strategies before attempting the Fakey strategy.

Remember that successful trading requires consistent practice, risk management, and the ability to adapt to changing market conditions. Traders should conduct thorough testing and practice in a demo environment before applying the Fakey strategy to real-money trading.