Breakouts, Fakeouts & the Retest

The breakout problem

Resistance breaks upward — and roughly half of all breakouts FAIL, snapping back into the range (a fakeout/bull trap). Why: breakout buying is the most obvious trade in the market, and stop-losses of trapped shorts sit just above — a thin, crowded move. Volume is the filter: a genuine breakout carries 1.5×+ average volume; a drift above the level on average volume is suspect.

The retest entry

The higher-probability play: wait for the breakout, then the PULLBACK to the broken level (old resistance → new support) that HOLDS. You give up some upside for dramatically better odds and a tight, structural stop (below the retest low). Pros routinely skip the initial break and buy only the retest.

Measuring failure

Define failure BEFORE entry: "if price closes back inside the range, the breakout is dead." That single sentence converts breakout trading from hope to process — and the stop from a number to a reason.

Sources

• BreakoutInvestopedia
• False BreakoutInvestopedia