How can strong breakout and fake breakout be differentiated?

<p id="isPasted">The main difference between a strong breakout and a fakeout lies in the strength of the confirmation signals, primarily volume and follow-through price action. A strong breakout is typically supported by high volume and a decisive move beyond the resistance or support level, whereas a fakeout shows weak volume and a quick reversal back into the previous trading range.&nbsp;</p><p><strong>Strong Breakout Characteristics</strong></p><ul><li>High Volume: A significant increase in trading volume as the price breaks the key level indicates strong conviction and market participation.</li><li>Decisive Price Action: The price should move convincingly past the support or resistance level, often with a large, strong-bodied candlestick and a close well beyond the level.</li><li>Follow-Through: The price should continue moving in the direction of the breakout in the subsequent trading sessions. A strong breakout is typically confirmed by a second candle closing beyond the level.</li><li>Successful Retest: After breaking the level, the price may pull back to retest the broken level (which then acts as new support or resistance) before continuing the move. A successful retest confirms the validity of the breakout.</li><li>Broader Market Context: A breakout that aligns with the overall market trend is generally more reliable. </li></ul><p><strong>Fake Breakout (Fakeout) Characteristics</strong></p><ul><li>Low or Average Volume: The breakout occurs without a noticeable spike in volume, suggesting a lack of market conviction and true buying or selling pressure.</li><li>Weak Price Action and Reversal: The price may briefly push past the level but quickly reverses, often with a long wick on the breakout candlestick.</li><li>No Follow-Through: The price fails to sustain the momentum and quickly falls back into its previous trading range.</li><li>Failed Retest: If the price pulls back to retest the broken level and slices straight through it, the breakout was likely fake.</li><li>Occurs Against Trend: Breakouts that run contrary to the larger trend are often less reliable and more prone to being false.</li><li>Stop-Loss Hunting: Some fakeouts are caused by large players pushing prices just enough to trigger other traders' stop-loss orders before reversing the price. </li></ul>

<p id="isPasted"><strong>Key indicators of a strong breakout</strong></p><ul><li>High Volume: A genuine breakout is typically accompanied by a significant increase in trading volume, indicating strong market conviction. A volume surge of 150% to 200% above the average is a strong signal.</li><li>Strong Price Follow-Through: For a strong breakout, the price should continue moving in the breakout direction in the trading sessions that follow. Multiple candles closing decisively beyond the resistance or support level confirm the move.</li><li>Post-Break Retest: A reliable breakout often sees the price return to retest the broken level (which now acts as new support or resistance) before continuing the original move. A successful bounce off this level solidifies the breakout's validity.</li><li>Strong Candlestick Patterns: The breakout candle itself should have a large body, with minimal wicks, and a strong close beyond the key level.</li><li>Market Context: A breakout that aligns with the overall market trend and is backed by a fundamental catalyst, like a positive earnings report or major news, is generally more reliable. </li></ul><p><strong>Red flags for a fakeout</strong></p><ul><li>Low or Declining Volume: A breakout that occurs on low or average volume suggests a lack of real market interest and is a major red flag.</li><li>Quick Reversal: The price may briefly pierce the key level but quickly snap back into its previous trading range. This often traps traders who entered too soon.</li><li>Long Wicks: Breakout candles with long wicks beyond the resistance or support level indicate price rejection and suggest that momentum is not being sustained.</li><li>Momentum Divergence: When the price makes a new high (or low) but momentum indicators like the Relative Strength Index (RSI) or MACD show divergence (e.g., lower highs), it suggests that buying or selling pressure is weakening.</li><li>Market Indecision: Fakeouts are more common in sideways or range-bound markets where there is a lack of underlying trend. </li></ul>