False Breakout
A false breakout occurs when price moves beyond a support or resistance level but quickly reverses back into the prior range. Also called a "fakeout," it traps traders who entered on the breakout and often leads to sharp moves in the opposite direction.
Understanding the Concept
• Common at obvious support/resistance levels where stops cluster • Often triggered by stop hunts or low liquidity conditions • Volume can help distinguish real vs. false breakouts • Experienced traders wait for confirmation before entering
Real-World Example
Bitcoin approaches $50,000 resistance for the third time. Price spikes to $51,200, triggering buy stops and breakout orders. Within hours, it reverses and crashes to $47,000. Traders who bought the breakout are now underwater and forced to sell, accelerating the move down. The breakout was false.
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