what is a head fake trade 
a head fake trade occurs when a security s price moves in one direction but then reverses course and moves in the opposite direction the head fake trade gets its name from a tactic used by a basketball or football player to confuse the opposition leading with their head to pretend that they are moving in one direction but then moving in the other way the head fake trade occurs most often at key breakout points such as major support or resistance levels or with moving averages like the 50 day or 200 day simple moving average sma 1understanding a head fake tradeconsider a situation where a major market index has reached new highs amid deteriorating economic fundamentals traders who are looking to short the index will closely monitor significant technical levels to assess whether the advance is beginning to break down suppose the index advance stalls and begins to drift lower trading below a key short term moving average the bears might rush in at this point based on their trading view that the index decline has begun but if the index subsequently reverses course and heads higher this would be a classic head fake trade contrarians often try to profit from head fake trades because their trading philosophy embraces a willingness to go against the crowd they argue that institutional traders push a security s price through closely watched support resistance areas to find additional liquidity to fill larger orders at a better price for their clients traders and investors who fall for a head fake trade can incur significant losses as such trades often occur before the start of a major trend in the opposite direction that s why it s imperative to maintain strict adherence to stop loss orders with these instances to help minimize risk the head fake trade and breakoutsan initial breakout is typically followed by some level of pullback as price retraces to the original breakout level or somewhat further down traders are left to determine whether the pullback is the beginning of a head fake a false breakout or whether it is temporary and the market will soon continue in the direction of the primary trend in the latter case the pullback may present another opportunity to enter a breakout move at a more advantageous level example of a head fake tradeduring 2022 the u s dollar was on a massive winning streak against all but a few currencies the chart below shows the u s dollar against the hungarian forint usd huf in a clear long term uptrend usd strengthening huf weakening one can discern multiple pullbacks but all are contained by the dominant rising channel with one key exception highlighted in the red oval price fell below the key uptrend support line on an intraday basis but managed to regain that trendline support before the end of the day this is a classic example of a countertrend head fake pattern if one made a trading decision based on the break of trendline support they would have learned in short order by the end of the day that the break was false and constituted a head fake price movement tight stops or the simple fact that the usd huf pair finished the day back inside the dominant up channel would have told traders that this was a head fake this was also confirmed by the fact that nothing new on in fundamentals had altered the basis for the usd to continue to strengthen tradingview