What defines a failed breakout?

A failed breakout is characterized by a scenario where the price does not sustain its movement in the direction of the breakout. Specifically, this is identified when the price fails to move more than a certain percentage, typically seen as a threshold for significant momentum, indicating that the breakout lacked strength. This situation often suggests that the initial momentum of the breakout has dissipated, leading to a reversal in price action.

When evaluating the definition of a failed breakout, it is crucial to recognize that the absence of strong upward or downward momentum means traders and investors did not have enough conviction to maintain the breakout trend, resulting in the price retracing or reversing. This phenomenon is essential for technical traders, as it signals a potential opportunity to re-assess market conditions or to take positions in the opposite direction.

While volume confirmation and price retracement can provide useful insights, they are not definitive indicators in defining a failed breakout. Understanding the dynamics of price movement relative to its breakout level is fundamental in analyzing market trends and potential reversals.