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Breakout Trading
The volatility that follows a level breaking, and the close-beyond-the-level test that separates true from false.
Breakout trading targets the volatility that often follows price breaking above or below a support or resistance level.
True breakout vs. false breakout
A true breakout occurs when a candle both breaks and closes beyond the level. More failed tests beforehand, for example, three failed attempts before a fourth successful break, tend to precede a real breakout. A false breakout occurs when price pokes through the level intra-candle but fails to close beyond it, leaving a long wick before snapping back.
The key discriminator
The determining factor is whether the candle closes beyond the level, not just whether it touches or briefly pierces it. A second test after the initial break adds confidence that the level is truly broken rather than a temporary wick-through.
Related concepts
Bull flags and wedges both resolve via breakout. Trendline breaks follow the same true/false-breakout logic as horizontal support and resistance.
Key takeaways
- Breakout trading captures the volatility that follows a support or resistance break.
- A true breakout closes beyond the level; a false breakout only pierces it before reversing.
- Multiple failed tests often precede a genuine breakout.
- Wait for a candle close beyond the level, and ideally a second test, before treating a level as broken.