False breakout: the wick versus the close
A false breakout is when price moves beyond a support or resistance zone and returns behind it before the candle closes. On a chart it usually shows as a long wick. It is the close, not the wick, that decides a breakout.
What is a false breakout?
When price reaches a resistance zone it can trade above the zone within a candle. At that moment a breakout seems to have happened. But if price is back below the zone when the candle closes, all that is left is a wick reaching above the zone.
In that case the zone has not been cleared but tested and rejected. The same holds the other way round at a support zone: the wick dips below the zone and the close stays above it.
How it forms
- Price approaches the zone. There is a rise towards a resistance zone or a decline towards a support zone.
- It moves beyond the zone within a candle. Price briefly trades above (or below) the zone. For a moment it looks like a breakout.
- The close comes back behind the zone. When the candle closes, price is back inside or behind the zone. Only the wick is left beyond it.
- The next candles move the other way. The false breakout reads more clearly if price moves away from the zone. A single wick on its own is not enough.
Three outcomes at the same zone
When price moves above a resistance zone, three different pictures can follow. The close and the next candles make the difference.
Real breakout
The candle closes above the zone's upper edge and the next candles stay above the zone too.
False breakout
The wick goes above the zone but the close comes below the zone. The next candles move lower.
Undecided
The close comes inside the zone. Neither a breakout nor a rejection is clear yet.
What it shows, what it does not prove
What it shows
- That prices beyond the zone were not accepted in that candle
- That the zone is still an area where price reacts
- That the close is a more reliable measure of a breakout than the wick
What it does not prove
- That price will make a long move the other way
- That the next attempt will fail too
- Who moved price beyond the zone, or why
The MarketLevelMap view
How it relates to zones
Telling a false breakout apart requires reading the zone as a band rather than a single line. A breakout is measured by a close beyond the band's far edge. A close inside the band only shows that the zone is being tested.
With a single line, any wick that crosses it by a few units can look like a breakout. A zone takes into account the width over which price has reacted before. So a move that wicks into the zone and returns can be read as the zone working again, not as the zone losing its validity.
Often confused with
For general information only. Not investment advice.Last updated: