For example, electric utilities are very stable in their price action compared to mining stocks where the volatility is far greater. Applying the same percentage breakout rule to both obviously doesn't make sense. What constitutes a decisive breakout, where the odds of a whipsaw are considerably reduced is then very much a matter of personal judgment based on experience, trial, and error. This judgment should take into consideration such factors as the type of trend being monitored, the volatility of the security, volume, and momentum characteristics.

Another factor that can help early on in deciding if a breakout is valid lies in the fact that a good breakout should hold for several periods. For example, you may observe a decisive upside breakout from a rectangle on a daily chart, but if it cannot hold for more than 1 day above the breakout level, the signal is highly suspect. Often the technical position is worse after such breakouts. This is because breakouts that cannot hold indicate exhaustion, and exhaustion moves are often followed by strong price trends in the opposite direction to that indicated by the (false) breakout.

On entering any trade or investment based on a price pattern breakout, it is important to decide ahead of time what type of price action would cause you to conclude that the breakout was a whipsaw.

An example might be a break below a previous minor low, a decline below a predetermined level from the breakout point. A stop should then be placed below such a pivotal point. In this way, you will have calculated the loss you are willing to undertake and the point where the original premise for the trade; that is, the breakout is no longer operative.

Failure to make such a decision ahead of time will mean that your decision to sell is more likely to be based on emotion and knee jerk reactions to news events than on a logical preset plan.