A resistance is an area where price growth has stopped once or several times, without ever being able to overcome it. We can define it as a real obstacle. So if the company is able to overcome (breakout) this obstacle, after being stopped previously, the chances of the price continuing to rise increase. Furthermore, prices are more likely to continue rising, the stronger the underlying positive trend.

Below is a chart of a company that appeared in a “Resistance Breakout” article here on BullDude.com.

As shown in the chart above, Pinduoduo Inc (PDD), the largest interactive e-commerce platform in the world, breakout a resistance on May 8, 2020, reported in the article published on the same day “6 Stocks Breakout a Resistance Today”. Since that day Pinduoduo Inc (PDD) has grown by more than + 65% in just 2 months. Among the other companies included in the article was Apple Inc (AAPL), which in the same period of time grew by + 23%.

The breakout is defined as “false” when the positive trend that supported the price growth reverses the direction (going from positive to negative). To understand when this event occurs, there is a red half-line in the chart that indicates the level below which the positive trend can be considered concluded.

A few negative days are not enough to call it a “false” breakout because often the cause is natural temporary volatility (given by the retest of the signal level or profit taking or general market crash).