A fakeout is a when a trader enters into a position thinking the price will move in one direction based on technical analysis, but the price instead goes in the opposite direction.

For example, they may see a price break through a resistance level, and take a long position expecting the price to continue rising. But then the price reverses and drops back below the resistance level and keeps plunging downwards.

There are two methods to deal with fakeouts, an aggressive way and a conservative way.

The aggressive way is to jump into the trade when you see signals, such as breaking a resistance level right away, but setting a stop loss to prevent excess losses.

The conservative way is to wait for the price to drop back down and retest the resistance level as a support level. If it bounces off the support level, then you can more confidently jump into the trade. If it ploughs through support and back down, then you saved yourself a loss.

Fakeouts can either be natural price action caused by the mob of traders. But they can also be manufactured by whales and corporate investors. For example, if BTC is trading at $9800, and a whale sees in the order book that there are a lot of people with limit buys at $10,200, then he may purposely push the price up to $10,200 so the limit buys get triggered. Once the buys get triggered and push the price higher, the whale could then close their position to capitalize on the higher price, thus causing the price to plummet again, and then all the people who purchased at $10,200 may have their stop losses triggered so they all sell and push the price down further.