What Defines a Strong Breakout vs. False Breakout?
I’d like to discuss the difference between what we often call a “strong breakout” and a “false breakout”.
Over the years, I've noticed that about 70% of range-based breakouts are short-lived (not strong). I'm hesitant to say that they're "false" because such a boolean statement depends upon the specific logic/strategy implemented.
For example, let's consider the daily range (DR). To be clear, this is not the average true range (ATR) nor even the average daily range (ADR). It is simply yesterday's High and Low which can be easily implemented by calling the High and Low prices of the D1 timeframe, bar shift 1, and then drawing two respective horizonal rays on a chart. Then add in the same bar's Open price and its horizontal ray. Finally, lets add in two profit target rays at +25% of the DR for buy trades and -25% of the DR for sell trades. You can do this on any intraday chart such as an M6, M15, M20, etc. either manually or programmatically. The Open price is used to determine directional bias (it also can be used as a price "magnet" for rangebound trading, but that is outside of the scope this thread). Stops can be set just a few pips inside the DR.
By setting such a conservative profit target, we've mitigated the effects of the would-be "false" breakouts--we really don't need to price to run that far. In this way, we're dealing with the usual state of the market rather than hunting for diamonds in the rough.
Spike ditecter
Interesting point. Are you referring to detecting liquidity spikes or exhaustion moves that often occur around breakout levels?
If you’re using a specific spike-detection approach or indicator, I’d be interested to hear how you apply it to distinguish real breakouts from false ones.
Over the years, I've noticed that about 70% of range-based breakouts are short-lived (not strong). I'm hesitant to say that they're "false" because such a boolean statement depends upon the specific logic/strategy implemented.
For example, let's consider the daily range (DR). To be clear, this is not the average true range (ATR) nor even the average daily range (ADR). It is simply yesterday's High and Low which can be easily implemented by calling the High and Low prices of the D1 timeframe, bar shift 1, and then drawing two respective horizonal rays on a chart. Then add in the same bar's Open price and its horizontal ray. Finally, lets add in two profit target rays at +25% of the DR for buy trades and -25% of the DR for sell trades. You can do this on any intraday chart such as an M6, M15, M20, etc. either manually or programmatically. The Open price is used to determine directional bias (it also can be used as a price "magnet" for rangebound trading, but that is outside of the scope this thread). Stops can be set just a few pips inside the DR.
By setting such a conservative profit target, we've mitigated the effects of the would-be "false" breakouts--we really don't need to price to run that far. In this way, we're dealing with the usual state of the market rather than hunting for diamonds in the rough.
That’s a very helpful way to frame it, especially the point about avoiding a strict “true vs false” classification and instead working with probabilities and context. The daily range example makes it clear how most breakouts don’t need large follow-through to be useful if expectations are adjusted realistically.
I like the idea of anchoring bias around the prior day’s High/Low and Open rather than relying on averaged measures like ATR or ADR, particularly for intraday work. It feels more aligned with how price actually behaves on most days.
This perspective really reinforces the idea of adapting strategy logic to the market’s usual state rather than waiting for exceptional moves. Thanks for sharing such a clear explanation.
An Opposite Hindsight Holy Grail reversal validation. It is impossible to get a better reversal validation than that.
Obviously in a continuing trend the absence of an Opposite Hindsight Holy Grail validated reversal confirms the validity of the breakout.
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I’d like to discuss the difference between what we often call a “strong breakout” and a “false breakout”. What criteria do you personally use (candlestick body size, volume, retest behavior, multi-timeframe confirmation)?
My observation: sometimes a breakout above recent highs comes with strong follow-through, but other times it fails quickly and returns inside the range. Curious how experienced members differentiate these cases.