Breakouts can launch the best trades of the month. Fakeouts can ruin the week. Here's how to tell them apart.
Signs of a real breakout
- A strong candle closes beyond the level (not just a wick).
- The break goes with the higher-timeframe trend.
- Price retests the level and holds.
- There was a squeeze first (tight range, narrowing Bollinger Bands).
Signs of a fakeout
- Long wick through the level, close back inside.
- Breakout happens in a quiet session, right before big news.
- Price immediately falls back into the range.
Pro tip
Fakeouts are tradeable too: when price snaps back inside a range after a failed break, the move to the other side can be fast.
Wick says
If a breakout looks too obvious and everyone on social media is screaming about it, that's often where the trap is set.
Key takeaways
- Closes and retests separate real breaks from fakes.
- Trend direction and prior squeezes improve breakouts.
- A failed breakout can be a great trade the other way.