Free Trading School · Level 8: Chart Patterns
Breakouts and false breakouts
A breakout happens when price closes beyond a level that has contained it. Breakouts can start powerful moves, but many fail: price pokes through, triggers the stop orders sitting there and snaps back. These are false breakouts or "fakeouts".
Signs of a healthier breakout
- A decisive close beyond the level, not just a wick.
- Volume clearly above average on the breakout candle.
- A prior squeeze or tight range: energy built up before the move.
- The breakout is in the direction of the higher-timeframe trend.
- Price holds the level on a retest.
A fakeout is itself information: when a breakout fails quickly, the trapped traders often fuel a sharp move the other way. Some strategies are built entirely around fading failed breakouts.
Wait for the close, check the volume and accept that some breakouts will fail. Your stop handles the rest.
Quick answers
A breakout happens when price closes beyond a level that has contained it. Breakouts can start powerful moves, but many fail: price pokes through, triggers the stop orders sitting there and snaps back. These are false breakouts or "fakeouts".
Wait for the close, check the volume and accept that some breakouts will fail. Your stop handles the rest.
Above-average volume and a decisive close. Volume and a clear close show real conviction.
Next lesson: Trendlines and channels