To detect fake out and break out is very simple. But also note this strategy accuracy varies from 70% - 90%. Here are simple Steps to follow to detect a Fakeout:

First of all all you need is Volume indicator , Price movement and Open interest. Some of you may not know what is open interest let's first know it:-

Open Interest :-

Open interest term is used to detect either number of traders is increasing or decreasing. As volume tell us amount for trading is increasing or decreasing same like it open interest tell us either number of trader is increasing or decreasing.

There are 4 senerios:-

  1. Open Interest going up , Volume going up but price is falling

  2. Open Interest going up, volume going up and price is also rising.

  3. Open Interest going down volume going down price is going down

  4. Open Interest going down volume going down price is going up

Let's explain all of them how to use them to detect fakeout.

Volume, Price & Open Interest Going Up

In this case if price is going up, Open Interest also going up and also volume going up then it will indicate that price is getting momentum and if price breakout then it will show that it is clear and valid breakout here is reason why?

The reason is very simple that open interest rising mean number of trader is increasing, volume increasing mean money is rotating activity is increasing and price is also showing strength that reflect strength of buyers. People who are entering in market that we detect with open interest are buyers price showed it they also have sufficient funds volume indicate this point.

In simple words open interest, volume and price moving up indicate that if price breakout then it will be considered as clear and valid breakout.

Open Interest Going Up , Volume Going Up But Price Is Falling

In this case it will indicate price will go more down if price break support. Reason is very simple that open interest and volume rising means number of traders and their trades are increasing falling price will hint that they are sellers mean price will go down.

Open Interest Going Down Volume Going Down Price Is Going Up

This senerio will indicate that if price breakout then it will be a Fakeout. Reason is that number of traders and activity is decreasing then how and why price is moving up. So, we will consider it as a fakeout if price break resistance.

Open Interest Going Down Volume Going Down Price Is Going Down

In this Senerio if price break support then it will indicate a fake breakout bcz when number of traders is decreasing and there activity also then it will show that sellers are decreasing and price soon will rise. Breaking of support will be a trap 🪤.

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