False breakout

A false breakout happens when a stock's price briefly pushes through a key support or resistance level, appearing to confirm a breakout or breakdown, and then quickly reverses back inside the prior range instead of continuing in that direction. Traders who entered a position expecting the move to continue end up on the wrong side almost immediately, which is why the pattern is also called a fakeout.

A false breakout to the upside, where price pokes above resistance and buyers pile in before it reverses lower, is commonly called a bull trap, since it traps bullish traders who bought expecting further gains. A false breakout to the downside, where price dips below support and short sellers pile in before it reverses higher, is called a bear trap for the same reason in the opposite direction. Both versions tend to trigger stop-loss orders clustered just past the level, whose forced buying or selling can add fuel to the sharp reversal once it starts.

Because false breakouts are common, especially around widely watched levels where many traders are positioned the same way, experienced traders often wait for confirmation before acting on a breakout, such as a closing price beyond the level rather than just an intraday spike through it, or a follow-through session that holds the new level rather than immediately snapping back. Volume is also used as a filter, a breakout on weak volume is considered more likely to be false than one accompanied by a clear surge in trading activity.