A figurative term used to describe the danger of buying assets when the market price is falling rapidly so as to make profit when the price rises.

A falling knife is a term used to describe the seemingly smart decision to buy an asset when its price falls regularly. The trader’s goal here is to buy the asset when it is very cheap, and sell it later when the price rises. Thus, falling knives are dangerous because the trader’s decision is not based on any technical indicator but ‘common sense’ and emotion which tell them that prices will rise again.

The idea of a falling knife comes from the Wall Street proverb that “If you like to catch falling knives, you might need a good surgeon with plenty of stitching thread to accompany you.” So, a falling knife is ultimately perilous and risky. This is because there's no assurance that the price won't keep falling rather than rebound.

An unease that comes from feeling that one is disregarding or overlooking an advantageous opportunity or situation.

The fear of missing out (FOMO) is the unease that comes from thinking that you are losing out on an opportunity because of ignorance of said opportunity or doubts regarding its validity. Thus, the envisioned opportunity may or may not exist, but the human mind holds on to the suspicion that inactivity is going to lead to regrets later on. The implications of FOMO is that one contemplates making a decision based on this unease, and the decision often leads to disastrous implications.

In all kinds of trading, FOMO is one of the biggest indicators of an emotional trader and investor. This becomes more apparent when such individuals focus on the fluctuation of asset prices rather than the big picture of trading. Many traders who FOMO into an asset end up regretting it when the price then moves rapidly in the opposite direction.

A situation in which the price movement of an asset does not go as expected.

A fakeout is a term used to describe a situation in which a trader confidently expects the price of an asset to rise or fall, and it does not. Instead, the price of the asset might even go in the opposite direction than expected by the trader. A fakeout is consequently an unexpected situation and has harsh implications on the subsequent decisions and confidence of the trader or investor.

Protecting oneself against fakeouts is the same as reducing the odds of unnecessary risks and losses. Thus, fakeouts can be checked by using multiple technical indicators to observe and predict price movements.

Falling Knife

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