Breakdown

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.

Breakdown

BREAKING DOWN '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.

RELATED TERMS
  1. Breakout

    A price movement through an identified level of support or resistance, ...
  2. Breakout Trader

    A type of trader who uses technical analysis to find potential ...
  3. Failed Break

    A price movement through an identified level of support or resistance ...
  4. Symmetrical Triangle

    A chart pattern used in technical analysis that is easily recognized ...
  5. Demarker Indicator

    An indicator used in technical analysis that compares the most ...
  6. Technical Rally

    An upward movement in a security's price following a declining ...
Related Articles
  1. Technical Indicators

    Interpreting Support And Resistance Zones

    Use of support and resistance zones can be a key to successful trades. Learn how they work and how to use them.
  2. Chart Advisor

    Commodities Trading Within A Defined Range (CORN, WEAT)

    Charts of several key ETFs are trading within clearly identified ranges. We'll take a look at where the commodities are likely headed next.
  3. Trading Strategies

    An Introduction To Price Action Trading Strategies

    For traders who want a mix of technical analysis with their own control in decisions, price action trading offers the perfect fit. Here's how it works.
  4. Forex Education

    How To Interpret Technical Analysis Price Patterns: Triple Tops And Bottoms

    Triple and double tops and bottoms may be tough to spot, but once you learn them, they can be powerful patterns.
  5. Technical Indicators

    Use Volume And Emotion To Tackle Topping Patterns (GERN, SLB)

    Selling short in a topping pattern offers an advantageous reward-to-risk profile, but it can be hard to find good entry prices.
  6. Forex Education

    Introduction to Types of Trading: Technical Traders

    Learn about the different traders and explore in detail the broader approach that looks to the past to predict the future.
  7. Active Trading Fundamentals

    What The Market Open Tells You

    The first few moments of trading provide a lot of information. If a trader analyzes this information, it can give a lot of insight into the market's moves for the day.
  8. Trading Systems & Software

    Use Price Action Trading Strategy for Results

    Bored by the fixed rules of technical and fundamental analysis? Price action trading allows you to customize your own trading strategy.
  9. Trading Strategies

    Rules and Strategies For Profitable Short Selling

    Short sales work well in bull and bear markets but strict entry and risk management rules are required to overcome the threat of short squeezes.
  10. Chart Advisor

    Apple Levels to Watch After Earnings (AAPL)

    Apple needs to trade above 115 or below 90 to escape magnetism created by technical conditions in place since a 2015 breakdown.
RELATED FAQS
  1. How do traders identify confirmation of prices on a chart?

    Learn about some of the crucial tools that traders can use to confirm their price movements on a chart before entering or ... Read Answer >>
  2. What is the pitchfork indicator that I keep hearing about, and how do I use it?

    The technical indicator known as Andrew's Pitchfork is not that well-known, and it's rarely used by novice traders. However, ... Read Answer >>
  3. What types of data are necessary to make a technical analysis?

    Understand what technical analysis is, the basic theory behind employing it and what data inputs are needed to conduct it. Read Answer >>
  4. What are the most common market indicators forex traders follow?

    Learn the most common technical indicators that forex traders and currency market analysts utilize to predict likely market ... Read Answer >>
  5. Why is the Ease Of Movement Indicator important for traders and analysts?

    Read more about the ease of movement indicator, a technical momentum oscillator created by Richard Arms to track price changes ... Read Answer >>
  6. What is a common strategy traders implement when using the Ease Of Movement Indicator?

    Read about some common strategies that traders can implement to make the most of out the ease of movement indicator developed ... Read Answer >>
Hot Definitions
  1. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  2. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  3. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  4. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  5. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  6. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
Trading Center