1. Set the frame
Use the original fictional daily closing-price series below. Prices are USD per share, one point per completed session, with no split or dividend event in the example. This is a line chart of closes; it cannot tell you the intraday high, low or order of trades.
Start by identifying what the picture can support. “Closed above $104” is observable here. “Never traded below $104 during that day” is not, because intraday data are absent.
2. Identify a reference area and a possible break
A move above resistance that does not hold
- Session 8 closes above the selected level.
- Session 9 closes back below it.
- A failed breakout is identifiable afterward; a rule must be specified before testing.
Read the chart data
| Session | Close (USD per share) | Reference level $104 (USD per share) |
|---|---|---|
| 1 | 98 | 104 |
| 2 | 101 | 104 |
| 3 | 100 | 104 |
| 4 | 104 | 104 |
| 5 | 101 | 104 |
| 6 | 104 | 104 |
| 7 | 103 | 104 |
| 8 | 107 | 104 |
| 9 | 103 | 104 |
| 10 | 101 | 104 |
Sessions 4 and 6 both close at $104. An analyst might use that area as a reference for resistance. Session 8 closes at $107, above it. The line is chosen from earlier observations, not guaranteed to stop price. A zone rather than an exact cent may be more realistic with noisy market data.
3. Add activity without assuming intent
Volume around the failed breakout
Read the chart data
| Measure | Million shares |
|---|---|
| S6 | 1.1 |
| S7 | 1 |
| S8 | 2.4 |
| S9 | 1.8 |
| S10 | 1.2 |
Session 8 volume is 2.4 million shares versus 1.0 million in session 7. Activity increased, but every transaction still has a buyer and a seller. Volume does not prove that informed investors accumulated shares or that the price will remain above the reference.
Session 9 closes at $103 and session 10 at $101. The initial break failed to hold on this closing-price definition. High volume did not prevent that outcome. This example is deliberately constructed to show the limitation, not estimate a pattern’s success rate.
4. Turn the interpretation into an evaluable rule
A research rule might specify a close above the previous range, entry only at a later executable price, and failure as a later close below a defined boundary. Those choices must be recorded before measuring outcomes. They are examples of research design, not instructions to place a trade.
Then test many eligible cases with spreads, costs, unavailable prices, gaps and out-of-sample evaluation. An attractive example cannot establish predictive value. Add moving averages only if they answer a distinct question; several transformations of price do not automatically provide independent evidence.
Does the volume spike confirm that the breakout will hold?
Show the explanation
No. In this constructed case activity rises on session 8, yet the next close is back below $104. Volume adds context, not a guarantee.
Sources and editorial notes
Original explanations and hypothetical examples prepared with AI assistance. Primary reference check dates are listed below. Numerical examples are hypothetical unless explicitly identified otherwise.
- Fidelity: Three Tips for Setting Up Charts
Time-window and interval choices. Scale arithmetic, data series, chart walkthrough and failure case are original. Checked October 17, 2026.
- Charles Schwab: How to Read Stock Charts and Trading Patterns
Line, OHLC bar and candle representations; observation intervals; false signals and limits of technical analysis. Original settings exercises and failure rules are Academy examples. Checked October 16, 2026.
- Fidelity: Support and resistance
Support and resistance as historical demand/supply reference areas. Academy numerical zones, test rules and failure scenarios are original illustrations, not measured evidence. Checked October 16, 2026.