How to Determine the Authenticity and Validity of Price Breakouts?

Identifying false breakouts follows certain discernible patterns. Although price movements are always erratic and elusive, due to the interplay of various market factors, prices often move within relatively clear trends during specific periods. This gives technical analysis tools like trendlines, channels, and chart patterns significant importance in investment operations.

Generally speaking, whether in an uptrend or downtrend, market opportunities are harder to capture during relatively flat trends, while market mutations tend to produce more and greater opportunities. When a trendline is decisively broken, the market undergoes a qualitative change, and price movements begin to accelerate. This presents an excellent opportunity to add positions, while investors who misjudged the trend should decisively exit and consider reversing their positions.

Objectively speaking, both the medium-term opportunities created by trend reversals and the short-term opportunities arising from price pullbacks to trendlines (or necklines) represent rare and highly actionable investment opportunities during market transitions.

However, the market also has its complexities, often employing various deceptive tactics regarding breakout validity. After the upper channel line is breached, when traders expect prices to accelerate upward and chasing buyers flood in, prices may suddenly "collapse," forming a bull trap. Similarly, prices frequently break through the lower channel line only to create bear traps.