False Breakout

A false breakout occurs when a security's price appears to move decisively above a resistance level or below a support level, suggesting the start of a new trend, but then quickly reverses back into its previous trading range. False breakouts trap traders who entered on the perceived breakout, forcing them to exit at a loss as the price retreats. They are most common in low-volume environments, around round numbers, or ahead of major news events. Experienced traders wait for confirmation of a breakout—sustained price action above resistance, a retest of the breakout level as new support, and strong accompanying volume—before committing capital, rather than chasing the initial price move.