Fakey trading strategy is one of my favorite trading strategies because the setup indicates that price is rejecting an important support or resistance level. So, there is a huge possibility of the price going to the opposite direction.

Fakey setups are of two types: one is with long tailed pin bar and another is without pin bar. A fakey setup, together with a long tailed pin bar at key support or resistance level, is always a very precise signal.

If you are a price action following trader, you have to admit that a fakey setup is a very potent and important setup. With the help of a fakey setup, you may have an idea about what the big boys want to do because it provides a good indication on what the market is likely to do next.

However, it is important that you know how to identify and trade a fakey setup effectively.

You may find a fakey setup in a trending market or a ranging market on key support or resistance zones. In some cases, it may appear in a market that is not trending at all.

In the forex market, you may find a lot of false breaks. Therefore, if you want to make profit from the forex market, it’s very important you learn how to trade with the fakey setup and avoid false breakouts. Otherwise, your entries will be wrong and you may lose your hard-earned money.

To trade a fakey set up, you have to understand how to identify a mother candle/mother bar and an inside candle/inside bar. The high of an inside bar will be lower than the previous bar (mother bar) high. And, the low of an inside bar will be higher than the low of the previous bar.

Positions of the inside bar can be at the top, bottom or at the middle of the mother bar (previous bar). In the following image, I have shown which one is mother bar and which one is inside bar.

So, when the inside bar setup is formed, we will look for a break out of the inside bar. If inside bar breaks and price moves continuously, then we can’t expect any fakey here.

But, if after breaking the inside bar price retraces back to the opposite direction, then a fakey set up is formed, and we may expect a beginning of counter trend.

If fakey is formed with long tail pin bar then the entry will be:

• At the break of Mother Bar (MB)
• At the break of Inside Bar (IB)
• 50% retrace level of the long tailed Pin Bar (to minimize the stop loss).

If fakey is formed without long tail pin bar then the entry will be:

• At the break of Mother Bar (MB)
• At the break of Inside Bar (IB)

In the following GBPUSD Daily chart, we can see the pair was primarily trending up at the time we had this swing point providing the confluence of resistance at 1.65476. Here, you can find a bearish pin bar reversal and a false break of the inside bar.

We had multiple inside bars inside this mother candle when the high was broken, it was the initiation of a confirmed entry but for me, a valid entry would have been on the close of that pin bar and, for the more conservative traders, an entry would have been on the break of that mother candle of that outside bar.

So really it’s just a false break up towards the key level at 1.65476. Thereafter, price reversed back down confirming the short entry and then the market fell away to hit the target.

How to trade a fakey in a trending market:

In the following GBPUSD daily chart, we can see the price was already in an uptrend and at the middle a good price action buy signal formed by a bullish fakey in a bullish market.

There were four inside bars followed by a mother bar candle. This is normally a common phenomenon in the forex market, as sometimes you may find more inside bars within a mother bar prior to fakey or false break bar occurring.

Here, the bullish fakey confirmed the buy signal when the bullish pin bar broke and closed above the mother bar high. Price continued to move up to the next resistance level just after confirming the buy signal.

The following chart also shows another example of a fakey setup in a trending market. There was an obvious downtrend right before the formation of the bearish fakey. This time it was an inside bar fakey with bearish pin bar from the resistance level.

How to trade a fakey when it goes against the trend:

Now, we will see what happens if a fakey occurs against a trending market. On the GBPUSD daily chart 1.46362 is a key support zone.

A bullish fakey buy signal was formed at the key support zone followed by a lower trend. As this fakey was formed by multiple inside bars and false breaks at the key support zone.

Here is another example of a counter trend fakey signal at AUDUSD daily chart. In this example, you can see a bearish fakey sell signal from the key resistance zone at 0.93994.

The price was clearly moving in an uptrend just before the formation of the bearish fakey. However after the formation of the fakey at the key resistance zone, price fell short as expected.

Some tricks and tips:

• Always try to remember that whenever you find an inside bar along with a false break of that inside bar, you will have a fakey setup.
• You should not enter the market with every fakey trading setup, as some fakeys are worth trading and some are worth passing on.
• Try to enter the market with a confluence fakey setup. A confluence setup is entering market with at least three reasons to back your decision. For example, Fakey + Pin Bar + Key Support / Resistance Zone.
• From the very beginning, it won’t be a wise decision to look for a fakey trading strategy signal on a shorter time frame (1 min, 5 min, 15 min or 30 min cart). Try to stick together with longer time frames like 4hour, daily or weekly time frame. Longer time frames give higher degree of accuracy.