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.



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.

  1. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth ...
  2. Bear

    An investor who believes that a particular security or market ...
  3. Breakout

    A price movement through an identified level of support or resistance, ...
  4. Head And Shoulders Pattern

    A technical analysis term used to describe a chart formation ...
  5. Pattern

    In technical analysis, the distinctive formation created by the ...
  6. Underlying

    1. In derivatives, the security that must be delivered when a ...
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