What Is a Failed Break?
A failed break (false breakout) occurs when a price moves through an identified level of support or resistance but does not have enough momentum to maintain its direction.
Failed breaks may also signal traders to enter a trade in the opposite direction of the attempted breakout. Since the breakout attempt failed, the price could head the other direction.
A throwback is when the price retraces back toward the resistance or support level just broken. A throwback is not a failed breakout.
How to detect failed breaks?
A failed breakout reveals that there was not enough buying interest to keep pushing the price above resistance or below support.
If a security does not see strong volume and substantial price moves supporting the breakout direction, the chance of a false breakout increases. Take a look at the chart and see how the uptrend line is broken with unexpected low trading volume.
If there is significantly increased volume on a breakout, the likelihood of a false breakout developing decreases (but is not eliminated). However, a throwback may still occur.
Failed breaks may also signal traders to enter a trade in the opposite direction of the attempted breakout. Since the breakout attempt failed, the price could head the other direction.
A throwback is when the price retraces back toward the resistance or support level just broken. A throwback is not a failed breakout.
How to detect failed breaks?
A failed breakout reveals that there was not enough buying interest to keep pushing the price above resistance or below support.
If a security does not see strong volume and substantial price moves supporting the breakout direction, the chance of a false breakout increases. Take a look at the chart and see how the uptrend line is broken with unexpected low trading volume.
If there is significantly increased volume on a breakout, the likelihood of a false breakout developing decreases (but is not eliminated). However, a throwback may still occur.
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