Fakeout is a term used in technical analysis (TA) that refers to a situation where a trader enters a position expecting a price movement that ultimately does not occur. In fact, in most cases, fakeout is used to refer to a situation where the price moves against a trading idea or signal.
To reduce the risk of fakeouts, many traders will limit the amount of capital they risk in a particular trade. As a general rule, many will not risk more than 1% of their trading capital on a single trade. Another strategy that helps reduce the potential fakeout effect is to rely on multiple technical indicators to enter a trade. Technical analysts may set very strict requirements for what is considered a “trading signal” in their strategy.