(Last Updated On: December 11, 2019)

So a breakout is basically when the price, for example, if you’re talking about a bullish breakout, they’re talking about the price breaking above a certain key resistance. Okay, and as such, you’re anticipating that a price will continue to go higher from there as a result. So that is why we call it a breakout.

Now, when we talk about a fake breakout, essentially, I think what you’re trying to mean is that a breakout that didn’t work out. Okay, so any breakout that didn’t work up is a breakout that didn’t work, alright. So basically I think you can actually break down a breakout into a fake breakout as well as failed breakout. Okay, now what’s the difference between a fake breakout and a failed breakout?

A failed breakout is the breakout that happens, everything happens accordingly. However, the market didn’t manage to continue to push the price higher and the price falls back to the breakout level and closes or breaks below that level again. So that’s why I call it a failed breakout. When we talk about a fake breakout, we are trying to assume that this breakout was fake, it was stitched, it was manipulated in a way. That’s the reason why it’s called fake breakout. Otherwise, if it’s not manipulated it should be, what we call, a failed breakout, okay.

So a fake breakout is when someone manipulate a breakout and that caused it to fail thereafter. And as such, trapping those or causing those traders who decide to get in during the breakout, to hit their stop loss and to lose money from there. Okay, so that’s what we call a fake breakout.

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Philip Teo

Founder & CEO at Traderwave Pte Ltd
Philip Teo is an entrepreneur, speaker and trading coach who specialises in the field of Technical Analysis of the financial markets. He is currently the Founder and CEO of Traderwave Pte Ltd, a financial technology company that offers a web charting application to global traders. He has conducted many trading seminars and appeared on national television before. He is also currently an official speaker and trainer with SGX Academy. Learn more about him at his Google+ Profile, LinkedIn Profile and Facebook Profile