If you've done contract trading for a while, you've probably had this experience:
You've been watching a key level for a long time—the previous high, the upper edge of a range, or a trendline resistance. The market finally moves, and a large-volume bullish candle breaks through directly. Almost reflexively, you jump in, thinking 'This time must be real.'
But what happens?
As soon as you enter, the price stalls.
A few minutes later, it starts to fall.
Your stop-loss is hit.
You just exit, and suddenly the market rockets upward, soaring away.
At that moment, you won't doubt the market—you'll doubt life 😅
Later, you might come to a conclusion:
"Breakout trading is unreliable."
But if you stay in the market long enough, you'll realize that the big trends are often driven by breakouts. The issue isn't whether breakouts work—it's which kind of breakout you're participating in.
Breakouts in the market can generally be divided into two types:
One is a breakout that happens to initiate a trend
The other is a breakout deliberately created to harvest liquidity
And the most common mistake retail traders make is mistaking the second type for the first.
Let’s start with the most realistic scenario.
A coin has been consolidating for three days, with a very clear range and well-defined upper and lower boundaries. The group chat starts buzzing. Someone draws trend lines, others say 'the direction is about to be decided', and some have already placed breakout orders.
At this point, almost everyone is watching the same price level.
You see this as an opportunity, but the market sees:
highly concentrated expectations.
Fake breakouts love to happen right here.
Because the buy orders and stop-losses here have already provided all the liquidity the big players need.
Price rapidly breaks above a key level
Volume spikes instantly
The candlestick looks very strong
You jump in, feeling like you're on the 'right side'
But what you don't realize is:
that breakout candle might not be the start—it might be the distribution phase.
The essence of many fake breakouts isn't a wrong market judgment—it's being in the wrong trading role.
You think you're trading with the trend, but actually you're helping others offload their positions.
So what's the real difference between a genuine breakout and a fake one?
First, the state before the breakout is far more important than the breakout moment itself.
A truly strong breakout rarely gives you that 'can't wait' feeling.
On the contrary, it often feels boring.
Price repeatedly consolidates below a key level
The range of movement keeps shrinking
Each drop is quickly pulled back
Selling pressure looks heavy, but it just can't push the price down
This kind of market is easiest to be disliked by retail traders.
"Stay still" "boring" "wasting time".
So you switch to another coin.
But from a capital perspective, this is actually the healthiest pre-breakout structure.
Because it indicates one thing:
Sellers are decreasing, but buyers aren't rushing to push the price up.
In contrast, the structure before a fake breakout is usually the complete opposite.
Price is pushed steadily toward the resistance level
Each rally is very fast
but the pullbacks are extremely shallow
creating a sense of 'if you don't jump in now, you'll miss out'.
This kind of sentiment is itself a danger signal.
Second, watch volume—but don't just look at one candle.
Many people judge a breakout based only on whether volume spiked at the moment of breakout.
This is a very common and extremely dangerous misconception.
Fake breakouts are best at creating 'instant massive volume'.
Because stop-losses, buying on the breakout, and market orders are all triggered at the same time.
This makes you see an extremely impressive volume bar.
But the problem is:
Where did the volume come from?
If volume is concentrated only in the breakout candle and then quickly fades, it's likely not new capital entering, but old positions being swapped.
The volume of a real breakout is rarely the most explosive single candle.
It's more like a process:
Volume on breakout
No shrinking volume on pullback
Continued volume expansion on second rally
In other words, a real breakout can withstand repeated trading, while a fake breakout is only suitable for 'one-time harvesting'.
Third, after the breakout, does the market 'accept' this price?
This is something many people completely ignore.
You can ask yourself one question:
After the breakout, can the price still hold above the breakout level?
After a real breakout, the former resistance level quickly turns into support.
Even during a pullback, it will be met with buying pressure.
Fake breakouts are completely different.
Price quickly drops back into the original range
and repeatedly oscillates at your most painful level
making you doubt whether your stop-loss was too small
It's not that your stop-loss is too small—it's that you were standing in the wrong position from the start.
Let me share a very real example.
Many people have experienced this:
Buying on breakout gets stopped out
Then the market lingers around your stop-loss price for a long time
You can't resist chasing it again
Then get stopped out again
The real trend only starts later
This isn't the market targeting you,
it's the typical rhythm of a fake breakout.
Its purpose isn't to immediately surge, but to gradually erode confidence.
Later, I made a crucial change in my breakout trading:
I stopped participating in the 'first move'.
Any situation where
it just broke through
it just saw a surge in volume
everyone is shouting
I force myself to stay不动.
I'd rather wait for a pullback confirmation
Wait for secondary volume expansion
Wait for the market to prove through time that this breakout is real
Yes, this means you might miss out on some profits.
But what you gain is higher win rate, greater stability, and most importantly:
your mindset.
In the contract market, the biggest enemy is never the price movement, but emotions.
The most dangerous part of a fake breakout isn't losing money—it's repeatedly undermining your discipline.
You start doubting your system
doubting your judgment
and end up not placing a trade when the real trend finally arrives
That's what's deadly.
There's one more point, extremely important but rarely mentioned.
A real breakout rarely rushes to make you profitable.
It will give you a pullback
give you a consolidation
give you another chance to get back in
In contrast, fake breakouts often make you feel 'something's off' the moment you enter.
If you review your past trading records, you'll notice a fascinating phenomenon:
The biggest losses almost always occur on breakouts that 'look most certain'.
Because it's not a technical signal—it's emotional consensus.
Finally, let me say something that might not be pleasant but is very truthful.
The essence of breakout trading is not technical analysis, but liquidity analysis.
What you should think about is not
"Is this really a breakout?"
but
"Are there enough people waiting to be attracted by this breakout?"
Once you start viewing the market from this perspective, you'll realize that many so-called 'strong breakouts' have already revealed their true intentions.
There's always opportunity in the market,
what's missing is whether you can survive long enough to catch the next real breakout.
I'm Dr. Sheep, here to help you avoid being led by emotions during countless breakouts 🐑📈
