Breakouts are one of the most tempting setups in trading. But here’s the hard truth: if you’re trading breakouts based on price alone, you’re setting yourself up to get faked out.
Markets are full of false breakouts – those quick pops above a level that reverse just as fast. And if you look at any chart long enough, you’ll notice the difference between breakouts that fail and breakouts that run comes down to one thing: volume.
Price Breakouts Without Volume = Traps
A breakout without volume is like a rumor without a source – it may stir up some action, but it doesn’t last. These are the breakouts that look clean but quickly reverse, trapping early traders. You get stopped out, and then watch as price retreats right back into the range or even reverses entirely.
This often happens because low-volume breakouts lack true commitment. There’s no wave of buyers or sellers behind the move – just a few speculative trades or stop runs. In these cases, price is probing, not pushing. And when no one follows through, the breakout collapses.
Traders who rely only on price often fall into this trap. They react to a level breaking but fail to consider whether the market believes in the move. That’s where volume steps in.
Volume Spikes: The Key to Confirmation
Volume is what turns a breakout from a setup into a signal.
In the chart above, every successful breakout was backed by a clear spike in volume. You can see this in the high-volume bars marked with blue arrows. These weren’t random breakouts – they were moments when the market showed conviction. Buyers or sellers piled in, pushing price cleanly through the level and triggering sustained moves.
This is the kind of confirmation you want to see. It tells you the breakout has muscle behind it. When price breaks a level and volume surges, you’re not trading noise – you’re trading momentum.
A Smarter Way to Trade Breakouts: Add the 21 SMA
Volume gets you into the right trades. The 21-period Simple Moving Average (SMA) helps you manage them like a pro.
Here’s the breakout strategy in full:
- Wait for Break + Volume Spike: No volume, no entry.
- Set Stop at Range High
- Target (NYSE:) 1x Risk First: Once price hits that target, move your stop to breakeven to eliminate downside.
- Trail the Remainder Using the 21 SMA: Stay in the trade as long as price closes above (for longs) or below (for shorts) the SMA. Exit only when price closes on the other side.
In the final breakout on the chart, this approach shines. A powerful volume spike drives the move, the 1R target is hit quickly, and the trade continues trending well above the 21 SMA for an extended gain. By using volume to filter entries and the SMA to manage exits, you create a repeatable framework that protects against noise and captures real momentum.