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Definition of 'Breakdown'
A price movement through an identified level of support, which is usually followed by heavy volume and sharp declines. Technical traders will short sell the underlying asset when the price of the security breaks below a support level because it is a clear indication that the bears are in control and that additional selling pressure is likely to follow.
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Investopedia explains 'Breakdown'
Technical tools such as moving averages, trendlines and chart patterns are the most common methods for technical traders to identify strong areas of support. The chart above shows that a trader will enter into a short position when the price breaks below an area of support (the thick dark line), which has been identified by using a head and shoulders chart pattern.
A breakdown is the bearish counterpart of a breakout.
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Learn how to capitalize on the predictable behavior of others during breakouts and breakdowns.
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Adopt a sound exit strategy based on support and resistance levels while understanding the market psychology behind them.
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Learn how to short this reversal pattern with a favorable risk/reward ratio.
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Use of support and resistance zones can be a key to successful trades. Learn how they work and how to use them.
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Emotion drives the market more than you might realize. Find out how psychology affects support and resistance zones.
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