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Glossary · Chart and price

False breakout (fakeout)

A move beyond a key level that quickly reverses back inside, trapping traders who entered on the break.

By Sky Trade editorial teamUpdated

A false breakout — also called a fakeout or failed breakout — is price crossing a level, attracting breakout entries and then returning to the old range. Anyone who bought the break is now on the wrong side, and their exits can push price further the other way.

False breakouts are especially common:

  • in quiet hours, when thin liquidity lets small orders push price through a level;
  • just before and after news releases;
  • at very obvious levels that everyone has drawn.

Some traders deliberately trade the failure: they wait for price to close back inside the range and then trade towards its middle. That is a legitimate idea, but it has the same flaw in reverse — what looks like a fakeout can turn out to be a messy real breakout.

The honest lesson is that no filter tells you in advance which kind you are seeing. Closes beyond the level, retests and higher-timeframe context improve your odds of reading it correctly, not your certainty. See breakouts and false breakouts and the breakout entry.

Example

AUD/USD breaks above 0.6650 resistance to 0.6658, then the next M1 candle closes at 0.6644, back inside the range. A Higher trade opened at 0.6656 with a 2-minute expiry loses.

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