Head Fake

A head fake is a market movement that initially appears to be heading in one direction but then quickly reverses course.It often occurs in technical analysis when price action signals a breakout or breakdown, luring traders into taking positions, only for the market to reverse and move in the opposite direction. Head fakes can lead to losses for traders who are caught off guard by the sudden change in momentum.

Example

A stock breaks above a key resistance level, prompting traders to buy in anticipation of further gains. However, shortly afterward, the stock reverses sharply, causing traders to sell at a loss. This reversal is a classic head fake.