Breakout and false breakout
Definition
A level breakout is price moving beyond a support or resistance level and holding there: a candle closed with its body beyond the level and the next one did not come back. A false breakout is a move beyond the level by a wick or body with a quick return inside the range. For binary options the difference is fundamental: a real breakout is traded in the direction of the move, a false one back toward the level.
What counts as a breakout
A support or resistance level is a price the market has already reversed from. A breakout happens when price passes through the level and holds beyond it. Two conditions, both mandatory:
- The candle closed with its body beyond the level. A move by a wick does not count: that is a wick, not a breakout.
- The next candle did not come back. It opened beyond the level and closed there or further.
After a real breakout the level's roles switch: broken resistance becomes support, broken support becomes resistance. The return of price to this level is called a retest, and it is the best entry point in the breakout direction.
False breakout
A false breakout looks like a real one right up to the candle close. Price goes beyond the level, collects the entries of those who waited for the breakout, and returns inside the range.
| Feature | Real breakout | False breakout |
|---|---|---|
| Candle close | body beyond the level | inside the range, only a wick beyond |
| Next candle | continues the move | returns to the level or further inside |
| Speed | an impulse with a large candle | a sluggish move, small body |
| Context | with the higher-timeframe trend | against the trend or in a flat |
| What to trade | continuation after the retest | the return inside the range |
In a flat there are more false breakouts than real ones: price walks from edge to edge and regularly pokes beyond them with wicks. In a trend the opposite holds: a level breakout in the trend direction is more often real.
How to trade a breakout in binary options
The instrument's peculiarity is that a trade cannot be closed early: it lives until expiration. So an entry at the moment of the breakout, while the candle has not closed yet, turns into guessing. There are two working options.
- After the breakout candle closes. The candle closed beyond the level with a large body; enter at the open of the next one in the breakout direction, expiration two or three candles. Suits impulse breakouts with the trend.
- On the retest. Price returned to the broken level and printed a candle away from it in the breakout direction. Enter at the open of the next candle. Rarer signal, but more precise: the level has already confirmed its change of role.
How to trade a false breakout
A false breakout is a signal in its own right, and one of the most reliable at strong levels. Conditions: price went beyond the level, but the candle closed back inside the range, preferably with a long wick toward the failed breakout. Enter at the open of the next candle in the direction of the return, that is away from the level, expiration one or two candles. If the next candle also forms an engulfing, the signal gets stronger.
Breakouts in the terminal
In BinoView Supercharts levels are drawn by the Average Support Resistance and S/R Signals indicators, and the Adaptive S/R Zones bot tells the two situations apart by itself: a wick touching a zone it reads as a bounce, a candle close beyond the zone as a breakout, and it signals both ways. How this works in auto trading is covered in the Adaptive S/R Zones review. Breakouts of fractal edges are traded by the Fractal Edge Breakout bot, and manual work on levels with breakouts and bounces is shown in the S/R Signals strategy.
How it differs from a liquidity sweep
A liquidity sweep is the same false breakout described in terms of large players: price goes beyond a level where stops and pending entries sit, collects them and reverses. The difference is in the explanation, not in the picture on the chart: a false breakout describes what happened to the candle, a sweep why the market needed it. For trading the same thing matters: the candle closed inside the range, enter back away from the level.
Frequently asked questions
How do I tell a real breakout from a false one?
By the candle close and the next candle. Real breakout: the candle closed with its body beyond the level, the next one opened there and did not come back. False: only a wick went beyond the level, or the body did but the next candle closed back inside the range. Until the candle closes, the breakout has not happened.
Should I enter at the moment of the breakout itself?
In binary options usually not: at the moment of the breakout it is unknown whether price will hold, and the trade cannot be closed early. Two options are more reliable: an entry after the breakout candle closes, at the open of the next one, or an entry on the retest, when price has returned to the broken level and bounced off it in the breakout direction.
What is a level retest?
A return of price to a just-broken level from the other side. Broken resistance becomes support, and if price touched it and bounced up, that confirms the breakout and gives an entry point for continuation. A retest does not always happen, but it gives the calmest entry.