Trading strategies

False breakout (fakeout)

Defined in 3 lessons · Updated October 17, 2026

Definition

A false breakout is a move beyond a level that quickly falls back inside, trapping traders who bought or sold the break. Say resistance is at $50, price trades up to $50.20, then the candle closes at $49.85: that break has failed.

Example

Suppose support sits at $30.00 and a trader shorts 100 shares at $29.90 as price dips to $29.70. The candle then closes at $30.25, back above the level, and when the stop at $30.40 is hit, the trader loses $50 on a false breakout to the downside. Waiting for a candle to close below $30.00 would have kept the trader out of this one.

Hypothetical numbers, for illustration only.

A chart labeled with this section's terms: a range between green support and red resistance at $50; a false breakout that trades up to $50.20 and closes at $49.85; a breakout that closes above $50; a retest where old resistance acts as support and the zone turns green; then a pullback and an uptrend of higher highs and higher lows.

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