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Identify the difference between a breakout and a fakeout!
March 21, 2015

Breakout vs. Fakeout

Monday, March 16, 2015

Identifying a breakout vs. fakeout is very important when determining trading strategies. Understanding these terms, and how to distinguish between a genuine breakout, and a false alarm or ‘fakeout,’ is a key to making good trading choices.

As the name implies, a breakout involves a situation where the prices ‘breaks out’ of its previously defined range. A breakout occurs when a stock price rises above its current resistance level, or falls below the existing support level, and this movement is accompanied by a high volume of trading.

If a movement outside the levels of support or resistance occurs with a low volume of trading, this may not indicate a true breakout, but rather a fakeout – a breaking of the support or resistance levels that does not indicate an oncoming trend, but rather a dramatic short-term price move that will subsequently revert to within the trading range.

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