Breakouts and breakdowns are not working. Are you thinking about why your
breakouts and breakdowns fail whenever you take a trade on them?

Well, first of all, let us know what breakout and breakdown are.

A breakout is what happens when a price breaks at the upside of a certain
range in the stock, and a breakdown is something that happens when the price
of the stock breaks at a certain range on the down side of the stock.

The 5 reasons behind the failure of the breakout and breakdown

After a deep analysis of breakout and breakdown failure reasons, we found that
there are five strong reasons behind the failure of the breakout and
breakdown. And they are:

5. Wrongly judged

This is the problem normally faced by the newbie, as their sense of judging
the breakout and the breakdown is not up to that level, and they normally fall
into the trap of the market ups and downs.

Sometimes the traders mistake any type of engulfing pattern for a breakout or
breakdown one.

And here they take the decision on the basis of their wrongly judged analysis
and fail to achieve the result they wanted it to be.

So, judging the right breakout and breakdown is utmost important to being on
the right side of the market.

4. impatientness

The sentiment of the traders becomes so strong that they are not able to
control themselves enough to wait until the completion of the candle.

Most of the time, this happens to everyone who is very much involved in
trading. As we see the chart, we wait until we see a breakout or breakdown.

As we are working on some range to break upside or downside, we accidentally
take the trade on some candle that is not complete but is running and showing
us that the shown range has broken.

Here, we see that impatience can take us in different directions, and it’s
better to wait until the completion of the candle to wait for a breakout or
breakdown.

3. News circulation

It is too recommended that we should be looking for news-related stuff
regarding the stocks on which we are likely to take a trade or on which we are
looking for a breakout or breakdown to happen.

Because sometimes what happens is that we take our decision correctly after
seeing everything to aim for a good breakout or breakdown, but instantly news
comes and hits our stoploss, and at that time the market leaps every norm of
rules governing technical analysis.

Its better to be with the flow of the news side or not to take trade at that
moment at any cost.

2. Volume issue

We have heard this many times everywhere: a good breakout or breakdown is
suggested to be one with a good volume.

Good volume breakout

But it doesn’t mean that a candle that creates a breakout or breakdown, if
small, isn’t going to be a good breakout or breakdown.

If price action is with the breakout or breakdown, then it is definitely going
to give you a good result; otherwise, it is always suggested to work on the
breakout or breakdown if the candle is breaking it with good volume.

Good volume means more traders are participating.

1. Strong resistance and support level

This is one of the most common reasons why breakouts and breakdowns are not
working for many traders.

Breakout at strong resistance

If we are looking for a breakout at a strong resistance level, then the
chances of breaking and staying above range become too weak, as it is seen
that many times after breaking, the stock price reverses instantly after
breaking it.

And it goes the same with the breakdown at a strong support level.

So being aware of strong levels can help us be on the right side of the market
or the stock.

Aftermath

Instantly making any decision on anything is not good, nor will it ever be
good. So the trading is also like this: patiently watching and then taking
decisions will always work and take us on the right side of the market.

Breakouts and breakdowns are market-created levels, and when they occur,
traders have a good chance of profiting from them.

If the breakout and breakdown happen after staying for some time at some level
and then breaking out with a good volume, then it creates a good chance of
profitable trade if taken accordingly.

Always work with a stoploss because it helps us counteract our losses.

FAQs

Frequently asked questions related to breakouts and breakdowns.

• • Is the breakout and breakdown enough to make a trade?
    • Yes, there are many traders who only work on breakout and breakdown
      strategies to make their trades and make profits too.
  • Does a breakout or breakdown with good volume always work?
    • No, but most of them do work nicely.
  • How do we judge a false breakout or breakdown?
    • Simply by analysing the things mentioned above, if something is
      happening between the five things mentioned above, then there is a
      problem with a breakout or breakdown.
  • Which breakouts are considered good for trades?
    • Which is happening at the support level.
  • Which breakdowns happened to be good?
    • That happens near the resistance level.