The Fakey candlestick pattern is one of the three models considered the most effective for Price Action investors. Therefore, if you are an investor who prefers effective trading based on Price Action, using the Fakey model is an option worth considering. So, how to apply this model to trading? Let’s explore details with Forex Trading through the following article!
Overview of the Fakey Model
The Fakey model, also known by names such as bear trap, bull trap, or price trap model,… This is one of the three candlestick models considered the most effective by trading investors. Frequently used price action translation.
What are fake candles?
Fakey is a popular price pattern in Price Action. It is applied to detect and avoid scams from the market when there is a breakout.
This is a variation of the Inside Bar pattern consisting of an Inside Bar and a false breakout. When Fakey appears, it indicates a market reversal. To help traders make accurate decisions and minimize risks.
Price pattern breaking can be considered a trap created by large investors in the market. This is intended to attract and deceive retail traders. Causing them to be eliminated from the market and creating space for prices to move in the opposite direction.
Types of Fakey in Forex Technical Analysis
- Inside Bar Fakey occurs when the price creates an Inside Bar candlestick pattern. Also known as the child candlestick, it stays within the range of the parent candlestick and then breaks out of this pattern. This is usually a strong trading signal, indicating a continuation of the current trend.
- Pin Bar Fakey is a popular type of Fakey. In which the price creates a Pin Bar candlestick pattern. Also known as candles that have one long shadow and one short shadow then break this pattern. Pin Bar Fakey often occurs at support or resistance levels. This can show you a trend reversal.
- Three Bar Fakey is identified when the price creates a pattern of three candle bars and then breaks out of this pattern. Three Bar Fakey generates powerful trading signals. Especially when appearing at support or resistance levels.
- Outside Bar Fakey is a special type of Fakey, where the price creates an Outside Bar candlestick pattern. Also known as the child candlestick is outside the range of the parent candlestick and then breaks this pattern. Outside Bar Fakey often creates trust signals for investors. The shooting star candlestick pattern is also a special candlestick pattern with three candles. It often appears at the tops or bottoms of a trend. To indicate a market reversal.
See more: Read candlestick charts: Basic & advanced material
How to combine Fakey with other tools
Combining Fakey with other tools is an important method. Aims to improve the likelihood of transaction success. Among them, using technical indicators is one of the most effective ways.
Indicators such as Moving Average, RSI, or MACD can be applied to support Fakey signals. For example, if a Fakey appears at a key support level. At the same time, RSI shows that the market is oversold. This could be a stronger buy signal.
In addition, combining Fakey with candlestick patterns also brings significant benefits. Candlestick patterns such as Pin Bar or Engulfing Pattern can be used to enhance Fakey signals. For example, if a Fakey appears while a Pin Bar candlestick pattern forms at a support level. This could be a buy signal with a high probability of success.
Additionally, following financial news is indispensable for traders. News can strongly influence the market and change trends. Therefore, observing important news such as economic reports, monetary policy information or market-oriented events is extremely important. This news may cause price fluctuations and affect the performance of Fakey.
Effective trading strategy with the Fakey model
It can be said that trading with the Fakey model is not too complicated. Many investors only need a little acumen to be successful in the foreign exchange market. Below are some steps for trading with Fakey Candles that investors should know.
Identify trends when doing technical analysis
First, investors need to evaluate whether the market is in a bullish or bearish phase. Or whether there is a sideways trend or not. Next, they need to identify important price zones. For example, support and resistance to be able to reverse the trend. When a Fakey candle appears, it is an opportunity to enter a trade.
Set command
Placing buy and sell orders is an important step after identifying the Fakey model. Especially when this pattern is formed by the Pin Bar candlestick. In this case, you can make transactions. To place a buy order, you should place the order above the top of the Pin Bar candle. Place with a minimum distance of about 2 pips.
Implement stop loss – take profit
Stop loss:
- When the market does not perform as expected, investors will make a stop loss by placing a stop loss below the bottom of the last candle.
- On the weekly chart, the stop loss should be at least 100 pips. On the daily chart, this level drops to 50 pips. For the H4 timeframe, the stop loss is usually 30 pips. With a 15-minute timeframe, this drops to 15 pips.
Take profit:
- Whatever trading method you adopt, it is important to adhere to the 1:2 risk ratio rule. This refers to the distance from the order entry point to the stop loss level (also known as stop loss). Compared to the distance from the order opening point to the profit-taking level of a transaction, it will be equivalent to 1/2 the distance.
- For example: To execute the Fakey pattern effectively, investors need to consider whether Fakey candles are formed in support or resistance zones.
The Fakey candlestick pattern forms at resistance or support
Resistance and support levels provide signals for reversals in market trends. When the Fakey pattern forms in one of these two areas, the reversal signal becomes strong and reliable. Especially, when the price breaks these zones and then turns back. At this point, the signal becomes even stronger.
Resistance and support lines can be horizontal or diagonal lines. Can also be determined using tools such as Fibonacci or MA.
When Fakey forms at a resistance zone, the appropriate SELL entry point is at that resistance zone.
When the Fakey pattern forms at support, it usually appears at the top of an uptrend and the support zone. In this case, what investors should do is enter a BUY order. At the same time, you should place a buy order at the lowest possible position.
See more: Exness – Trade With The World’s Leading Broker Exness
Important notes when trading with the Fakey candlestick pattern
The appearance of the Fakey candlestick pattern is never guaranteed to be perfect. Trading requires caution and caution. This is the difference between professional investors and beginners.
For example, you probably won’t just see an Inside Bar in the price structure. It could also be more if there are 2 or 3 such candlesticks.
An important characteristic of recognizing an effective Fakey candlestick signal is the clarity of the price structure. If you pass up an unattractive opportunity, this can affect your win rate in the long run. Trade at reasonable points of market signals. Includes support, resistance, Pin Bar, trend lines, and combinations of price levels. This can significantly improve your trading performance.
Additionally, what is Morningstar? Candlestick pattern is also an important factor in determining entry points and ensuring the effectiveness of your trading strategy.
Conclude
Above are some shares about the Fakey candlestick pattern as well as how to trade with it. Forex Trading hopes this article has brought you useful information about Fakey Candles. Wishing you success when applying these trading methods.
Frequently asked questions
Where does fakey usually appear on the chart?
Fakeys can appear at any support or resistance level on the chart. Especially since the price is having difficulty breaking above this level.
How to determine the entry point when there is a Fakey?
Entry points can be determined based on many factors. Includes Fakey’s structure, nearby support, or resistance zones. At the same time, confirmation from other technical indicators can be considered.
Is it necessary to combine Fakey with other tools?
Combining Fakey with other tools such as Moving Average, RSI or Fibonacci can increase the authenticity of the signals. This helps make more accurate trading decisions.
