Fakey Trading Strategy

The Fakey Trading Strategy was made popular by a Forex trader named Nial Fuller from Australia.  I don’t know if Nial actually “discovered” this price action pattern but he certainly helped bring it to the forefront of trading strategies.

It is a very good Forex swing trading strategy because it can setup on even the larger time frame charts.  It’s actually a great idea to hunt for them on the larger time frame charts because you could be catching the beginning of a very big move in price.

Here is one of Nial Fuller quotes explaining the power behind the Fakey trading setup:

Often times the market will appear to be headed one direction and then reverse sucking all the amateurs in as the professionals push price back in the opposite direction. This can set off some pretty big moves in the Forex market

Some of the biggest and fastest moves in Forex or any other market is when a lot of traders are caught on the wrong side of price.  This creates some powerful order flow that can help drive you into profits very quickly.

Here Is The Strategy For Trading The Fakey Setup

• Forex Indicators: The Fakey Forex trading strategy does not require the use of any forex indicators at all. All you need are your eyes and a bit of price action analysis of candlesticks
• Time frames: Preferably  larger timeframes from 1hr to daily
• Currency Pairs: Any pairs including the sometimes volatile JPY crosses

This Forex chart below shows a Fakey trading strategy example when we are interested in a continuation trade in an uptrend

Fakey Trading Strategy Being Used In An Uptrend

Looking at the context of this chart, we can see price has tested a pivot high that appeared at the left side of the chart.  Price began to consolidate at what is now resistance (generally a sign of strength) and then we start to look for the setup to begin to form.

1. An inside bar forms after price has found support in this consolidation pattern
2. Price dips below and is rejected from lower prices.
3. The closing price is back inside the range

The Fakey entry is triggered as price moves back up past the high of the inside bar (or the low in the case of a bearish Fakey).

In our example chart,  you can see the market was recently moving higher before the Fakey formed.

Note the Fakey was formed on the false-break of an inside bar setup that occurred as all the amateurs tried to pick the market top, the pros then stepped in and flushed out all the amateurs in a flurry of buying.

“It’s Just A False Breakout”

Some people will call this a “false breakout pattern” but I firmly believe there is nothing “false” about it and am not a fan of that definition  When price does something such as this when traders are leaning one way (or when they are enticed to enter on a breakout), the move is designed to take their money and give liquidity to the market.

Breakouts tend to sucker a lot of traders in looking to catch the beginning of a new trend and the Fakey pattern looks to take advantage of those traders.  Breakout trading can work but it depends on the context in which we find the breakout occurring.

Learning how to avoid “false” breakouts, while not always 100% perfect, can be done depending on the chart.

It’s not a false move but a carefully orchestrated attempt to hurt those who are leaning to the wrong side and force liquidity into the market.

In our example, when traders identify a break and pile in short but the real intention is to the upside, they must exit their shorts and perhaps then buy into the market once they’ve been taken out.  This adds liquidity for the players who use a Fakey strategy and propels their trade in the intended direction.

HOW TO TRADE THE FAKEY TRADING STRATEGY

If you are interested in a bullish position

1. Place a buy stop order anywhere from 2-5pips above the high of the false breakout candlestick.
2. Place your stop loss anywhere from 2-5 pips below the low of the false breakout candlestick.
3. Take Profit When price moves 3 times what you risked or you can use a previous swing high as your take profit target.
4. Consider trailing stop your your trades when it is in profit so you lock in your profit as price moves upwards.

If you are bearish

1. Place a sell stop order anywhere from 2-5 pips below the low of the false breakout candlestick.
2. Place stop loss 2-5 pips above the high of that breakout candlestick.
3. Profit should be 3 times what you risked initially or use previous swing low point as your take profit target.
4. Trailing stop technique should be utilized to lock in your profits as price moves down.

Using The Fakey Setup As Retracement or Rally Entry

One really good way to use the Fakey is in concert with another trading pattern:  continuation chart patterns

In this graphic we have a daily chart that is in an uptrend and is completing a complex correction.  Often times traders have a hard time entering a pullback trade and this is where the Fakey setup can help.

FAKEY SETUP IN RETRACEMENT

Once you have seen a complex pullback taking place (can be inferred from candles on bigger charts), you would drop down to a lower time frame and look for a Fakey setup to help get you into the trade.  Your stop loss is under the Fakey candle which leaves no room for you to be subjective.

ADVANTAGES OF THE FAKEY FOREX TRADING STRATEGY

• The trading setup is not complicated and it is easy to spot if you know what you are looking for.
• Its a Forex strategy based solely on price action and candlesticks and does not have any Forex indicators to make things look too complex.
• Explosive moves can happen with the Fakey setup so it makes sense to use the higher time frame charts for the setup and lower for the entry.

 DISADVANTAGES OF THE FAKEY FOREX TRADING STRATEGY

• Price action is not always 100% right, sometimes you will get caught out.
• Avoid trading Fakey setups when price is consolidating (moving sideways).  Trade fakey setups in strong trending markets or as part of a range trading strategy.

The Fakey Trading Strategy is a multi-use trading setup and as shown, can be used as it’s own trade or an entry into another trading pattern. As with all trading, ensure you are paying close attention to risk.