🎯 Introduction
In technical analysis, breaking through a resistance or support level is considered a key signal for either trend continuation or reversal. However, not all breakouts are genuine. The illustration highlights the essential difference between a True Breakout and a Fakeout.
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✅ 1. True Breakout
🔍 What is it?
A True Breakout is a strong and decisive price movement where the price breaks a resistance or support level with confirmation, and continues moving in the direction of the breakout without quickly returning back.
✨ Characteristics (as shown in the chart):
Price Action: After touching the resistance (or support), the price breaks through with a clear closing candle above it (for resistance) or below it (for support).
Post-Breakout Behavior: The price does not return to the previous range. Instead, the old resistance becomes new support (or support becomes new resistance), and the price continues trending upward or downward.
💡 Example:
If the price is moving in a sideways range and suddenly breaks the upper resistance with strong momentum and high trading volume, closing clearly above it and not pulling back immediately, this is considered a True Breakout, signaling the beginning of a bullish trend.
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⚠️ 2. Fakeout (False Breakout)
🔍 What is it?
A Fakeout is a deceptive price move where the price seems to break a resistance or support level briefly but fails to hold above/below it, and quickly returns back, continuing in the original direction or reversing strongly.
✨ Characteristics (as shown in the chart):
Price Action: The price slightly breaks the resistance/support, often through a wick or a small candle body.
Post-Breakout Behavior: The price does not continue in the breakout direction. Instead, it quickly reverses back, trapping traders who entered based on the breakout.
This is often used by Smart Money or liquidity hunters to trigger stop losses and grab liquidity before moving the price in the opposite direction.
💡 Example:
The price breaks a key resistance, attracting buyers to enter long trades. However, the price lacks momentum, quickly drops back below resistance, causing losses to trapped buyers. This is a Fakeout trap.
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🎯 How to Differentiate Between a True Breakout and a Fakeout
Factor ✅ True Breakout ❌ Fakeout
Volume High volume confirms strength Low or weak volume indicates lack of conviction
Closing Candle Candle closes firmly above/below the level Price only pierces the level without strong closing
Retest Behavior Old resistance becomes new support (or vice versa) and holds Price fails to respect the level and moves back easily
Momentum Indicators (RSI, MACD, etc.) Indicators support the move (healthy momentum) Indicators show weakness or overbought/oversold conditions
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🎓 Summary
True Breakout: Strong movement, high volume, confirmed candle close, and continuation.
Fakeout: Weak movement, low volume, temporary break, followed by reversal and liquidity trap.
Understanding this difference is crucial for risk management and avoiding false signals that lead to losing trades.
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