Breakouts can make or break trades but not all breakouts are real. Understanding the difference is key to protecting your capital.
False Breakout:
Price temporarily moves above resistance or below support.
Volume is low or inconsistent.
Often traps traders who buy too early, only to see the price reverse.
Look for quick retracements as a warning sign.
Real Breakout:
Price moves decisively above resistance or below support.
Confirmed by high trading volume and momentum.
Usually holds or continues in the breakout direction.
Often supported by broader market trends.
Tips to Spot Them:
Check the volume: strong breakouts come with strong volume.
Wait for a close above resistance (or below support) rather than reacting to wicks.
Observe market structure: is it aligned with the trend?
Trading breakouts requires patience. Jumping in too early on a false breakout can cost more than staying out. Remember: protecting your capital is the first step to consistent profits.
Pro Tip: Combine volume, momentum, and trend alignment to increase your breakout accuracy.