What is ‘Failed Break’
A price movement through an identified level of support or resistance that does not have enough momentum to maintain its direction. Since the validity of the breakout (or breakdown) is compromised, many traders close their positions and the price fails to make the sharp move that many were expecting.
A failed break is also commonly referred to as a “false breakout”.
Explaining ‘Failed Break’
As you can see from the chart above, technical traders who identified the descending triangle would expect a substantial move lower once the price was able to break below the $21.50 support. However, in the event of a failed break, the move lower would not occur and many traders would be forced to realize a significant loss. Many technical traders will use other technical indicators to confirm that the breakout is valid and that the momentum will likely continue.
Further Reading
- Failure Is an Option: An Ersatz-Antitrust Approach to Financial Regulation – heinonline.org [PDF]
- Multiple trend breaks and the unit-root hypothesis – www.mitpressjournals.org [PDF]
- Financial integration of East Asian economies: evidence from real interest parity – www.tandfonline.com [PDF]
- Structural breaks and the relationship between barley and wheat futures prices on the London International Financial Futures Exchange – academic.oup.com [PDF]
- International financial liberalization and economic growth – onlinelibrary.wiley.com [PDF]
- Breaking bad: too-big-to-fail banks not guilty as not charged – heinonline.org [PDF]
- The Big Banks: Background, Deregulation, Financial Innovation, and Too Big to Fail – heinonline.org [PDF]
