Learn To Spot Fakeouts And Trade Volume Breakouts With Confidence

Breakouts can change your week—or drain your account—depending on one thing: conviction. We unpack the simple, repeatable way to separate real momentum from noisy spikes by reading volume and price action together. If you’ve ever chased a candle over resistance only to watch it reverse, this guide shows how to slow down, verify commitment, and trade with tighter risk.

We start by clarifying what a genuine breakout looks like: a clean move through support or resistance that holds, ideally with a retest and continued strength. Then we zoom into the three classic fakeout flags—low relative volume, weak follow-through, and volume divergence—as seen around well-watched SPY levels in 2023 and 2024. Those patterns repeat because crowded levels attract impatient entries. By waiting for elevated volume and healthy structure, you pass on traps and reserve capital for moves with sponsorship.

From there, we build a practical plan. Entries trigger on high-volume breaks or controlled retests; stops sit just below the level or 1–2% under entry to define risk; targets align with the next resistance, measured move, or an ATR-based extension. We also cover when to scale out as volume fades, how to spot exhaustion before the pullback, and why quick exits on weak tape are a strength, not a failure. Real SPY examples illustrate both sides: fast reversals on thin volume and durable trends powered by broad participation.

If you want a cleaner playbook for trading breakouts, fakeouts, and volume breakouts—especially on liquid names like SPY—this episode gives you the filters, rules, and context to act with confidence. Subscribe, share with a friend who chases breakouts, and leave a review telling us your best fakeout save and what you want us to tackle next.

Transcript

Defining Breakouts And Key Levels

What Fakeouts Look Like

Spotting Fakeouts With Volume And Price

Volume Breakouts And Conviction

Entries, Stops, And Targets

Confirmations From Real Examples

Trading Fakeouts With Tight Risk

Step-By-Step Trade Setup

Key Takeaways And Closing

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Understanding these can significantly help your trading strategy. Today we're going to get into breakouts, fake outs, and volume breakouts by a pajama trader. Give this a like and subscribe. Let's get into it. What is a breakout? Breakouts are key moments in trading, signaling powerful trend changes. They can occur in various market conditions and are essential for identifying trading opportunities. A breakout occurs when a stock moves past the resistance or support level. Breakouts can occur in different market conditions. Breakouts are key moments in trading signaling potential trend changes. Fakeout breakouts. A fake out breakout is a false breakout that reverses. Fakeouts lack market conviction. Fakeouts can also be costly if not recognized early. Fakeouts can be costly obviously if you don't recognize them early. They often lack conviction and followed by a reversal. It's crucial to differentiate between a genuine breakout and a fake out breakout to avoid unnecessary losses. How to spot fake out breakouts or fakeouts. Paying attention to the volume and price action can help you from spot fakeouts. For instance, consider a scenario where the spy ET up attempts to breakout but fails to sustain the move due to low volume. A recent example might be a situation where the SPY briefly broke above resistance, a level around 608.65 in December 2024, but then reversed. Similar to what we discovered early in 2023, when the market showed volatility around key levels like 420. Lack of volume. If the breakout lacks significant volume, it might be a fake out. For example, if the SPY ETF breaks out, but the volume is below its average, it could indicate a lack of market conviction. Price action. Look for weak price action or a reversal shortly after the breakout. A fake out often involves a quick reversal after initial breakout attempt. Volume divergence. If the volume decreases as the price action moves in the breakout direction, it could be a fake out. This divergence suggests that the breakout lacks strong market support. 1. Low volume trading during the breakout might indicate a fake out. 2. Weak price action or a reversal can signal a fake out. 3. Volume divergence is a red flag for fakeouts. Volume breakouts. Volume breakouts are more reliable as they indicate strong market participation. When a SPY ETF breaks out with high volume, it often signals a potential trend continuation. For instance, during the breakout in May 2023, the SPY ETF showed a significant increase in volume, which supported the breakout's legitimacy. A volume breakout is characterized by high trading volume. High volume indicates strong market conviction. And volume breakouts are more reliable than the fake outs. How to trade volume breakouts. Entry. Enter a trade when the stock breaks out with increased volume. For example, if the SPY ETF breaks out above a resistance level like 520 with high volume, consider buying a long position. Set a stop loss below the breakout point to limit losses. If the stock price falls below or if it is at 525, set a stop loss about 500 to 515 depending on market conditions. Taking profit, consider taking a profit at a key resistance level or when the volume starts to decrease. For example, if the SPY ETF reaches resistance around 560, you might consider taking profit and adjust your strategy based on market conditions. Enter trades during volume breakouts. Set stop losses below the breakout point. And take profit at resistance levels or when volume decreases. Notice how the volume increases during the breakout indicating strong market participation. This is a key sign of a legitimate breakout as it suggests that many traders are supporting the move. In this example, the SPY broke out above a key resistance level in early 2024. And the volume surged, confirming that the strength of confirmed the strength of the breakout. This kind of scenario often presents a good trading opportunity as it indicates a potential trend continuation. Despy ETF broke out above a resistance level in early 2024. Increased volume confirmed the breakout strength, and this breakout presented a trading opportunity due to strong market participation. Trading Fakeouts in SPY Look for reversals after a breakout with low volume. If the SPY ATF breaks out but then reverses without significant volume support, it might be a fake out. For example, think if you traded the SPY when it briefly breaks above resistance around 561.72 in July 2024, but then reverses. This could be similar to what was observed in November 2023 when the market showed volatility around levels like 401. Be cautious and prepare to exit quickly if the trade doesn't work out. Set a stop loss order and limit potential losses. Consider setting stop losses below the breakout point around 1-2% below the entry price, depending on market conditions. Identify fakeouts by looking for reversals with low volume. Set stop losses to manage risk and exit quickly if the trade fails to gain traction. When trading fakeouts, it's crucial to be cautious and prepared to exit quickly if the trade doesn't work out. Fakeouts can be costly if not recognized early, as they often lack the conviction needed to sustain the move. In this example, earlier, the spy ETF attempted to break out but fails to gain traction, reversing ahead. And then you would notice how the volume during the breakout attempt, which was a red flag indicating a potential fake out. Trade setup. For an entry, look for a long position when the SPY ETF breaks out above a resistance level, such as 60865. For instance, if the SPY breaks out above that level, like it did in 2024, imagine taking advantage of trade and entering a call or just buying the stock. 2. Setting stop losses. Set a stop loss below the breakout point, around 1-2% below the entry price. If the entry price is$608.65, set a stop loss around$599.24 to$601.44. Exiting the trade. If the trade reverses without strong volume support, exit the position quickly to limit losses. Alternatively, if the breakout is successful and volume increases, consider holding the position until a clear reversal or predetermined profit level is reached, such as the resistance level around 620. Conclusion. Understanding volume and price action is crucial for trading breakouts. Practice is essential for mastering these concepts, and continuous learning helps traders stay adaptable in changing market conditions. Remember, practice and patience are key to becoming a proficient trader in breakouts and fakeouts. Always remember monitoring volume and price action closely to make sure that you're getting better trades. And thanks again for watching.