Breakouts, retests and fakeouts

What a breakout is

A breakout is a candle close beyond a level that has been holding price: resistance, support, a trendline or a pattern boundary. It is the moment most chart patterns complete.

A wick through the level is not a breakout. Price often pokes through a level during a period and closes back inside.

Retests

After a breakout, price often comes back to the level it just broke. This is a retest. If broken resistance holds as support (or broken support as resistance), the breakout has passed a second test. The support and resistance lesson explains why levels swap roles.

Not every breakout retests. Some move away and never look back.

Fakeouts

A fakeout is a breakout that fails: price closes beyond the level, then falls back inside. The chart above shows one. They are common, for clear reasons.

• Stop orders sit just beyond obvious levels. When price reaches them, they trigger a burst of buying (or selling) that pushes price through, then runs out.
• Thin participation. A break on low volume has few traders behind it.
• Low liquidity. In quiet hours or small markets, a few large orders can push price through a level briefly. See order books.

A failed breakout is informative in itself. Traders who bought the false break are now trapped, and their exits can drive price hard the other way, as in the chart.

Signs of a weaker breakout

• The breakout candle closes only just beyond the level, or leaves a long wick back toward it.
• Volume on the break is no higher than usual.
• Price returns inside the range within a candle or two.

None of these proves a breakout will fail. They are reasons for more doubt.

Invalidation

Every pattern on this site lists what invalidates it: the price action that proves the idea wrong. Deciding that in advance is the most useful habit in chart reading. It turns a failed breakout into information rather than something to explain away.

Common mistakes

• Acting on wicks. Wait for the close.
• Ignoring volume. A breakout on thin volume deserves more doubt.
• Moving the goalposts. If price closes back inside, the breakout failed. Redrawing the level to keep the idea alive is how small mistakes grow.