Breakout

AAA

DEFINITION of 'Breakout'

A price movement through an identified level of support or resistance, which is usually followed by heavy volume and increased volatility. Traders will buy the underlying asset when the price breaks above a level of resistance and sell when it breaks below support.

Breakout


This chart shows a stock that has historically encountered a lot of resistance near $37, but notice how it heads sharply higher following the breakout.

INVESTOPEDIA EXPLAINS 'Breakout'

In practice, a breakout is most commonly used to refer to a situation where the price breaks above a level of resistance and heads higher, rather than breaking below a level of support and heading lower. Once a resistance level is broken, it is regarded as the next level of support when the asset experiences a pullback Most traders use chart patterns and other technical tools such as trendlines to identify possible candidates that are likely to break through a support/resistance level.

A breakout is the bullish counterpart to a breakdown.

RELATED TERMS
  1. Breakdown

    A price movement through an identified level of support, which ...
  2. Throwback

    A price move back toward the entry level of a security that has ...
  3. Resistance (Resistance Level)

    A chart point or range that caps an increase in the level of ...
  4. Breakout Trader

    A type of trader who uses technical analysis to find potential ...
  5. Momo Play

    A slang term used to describe an advanced trading strategy based ...
  6. Conditional Order

    A type of order that will be submitted or canceled if set criteria ...
RELATED FAQS
  1. What is a common strategy traders implement when using a Turtle Channel?

    The most common trading strategy employed with the turtle channel is the original strategy that the indicator was developed ... Read Full Answer >>
  2. Why is a Turtle Channel important for traders and analysts?

    Like most channel indicators, the turtle channel's importance for traders or market analysts lies in the fact that it is ... Read Full Answer >>
  3. What is the Turtle Channel formula and how is it calculated?

    The turtle channel is intended to circumscribe price in such a way that any breakout from the channel should be a definitive ... Read Full Answer >>
  4. What are the most common examples of Range-Bound Trading strategies?

    Once a trader recognizes – by seeing at least two similar highs and two similar lows that establish the upper and lower boundaries ... Read Full Answer >>
  5. How do I implement a forex strategy when spotting a Spinning Top Pattern?

    The spinning top candlestick is commonly interpreted by analysts as a signal of market indecision. A spinning top is formed ... Read Full Answer >>
  6. How effective is creating trade entries after spotting a Symmetrical Triangle pattern?

    Trade entries created based on the symmetrical triangle pattern are usually very effective, since a decisive breakout to ... Read Full Answer >>
  7. How do I implement a forex strategy when spotting a Saucer Pattern?

    A forex trading strategy that seeks to profit from the trend change signaled by the appearance of a saucer pattern, also ... Read Full Answer >>
  8. How are Rounding Top patterns interpreted by analysts and traders?

    Rounding top patterns are interpreted as bearish market reversals formed by a gradual transition from an uptrending market ... Read Full Answer >>
  9. How effective is creating trade entries when using Outside Days?

    Trade entries based on outside days can be very effective because they offer a strictly defined limited risk and high profit ... Read Full Answer >>
  10. How do I find stocks developing ascending triangle patterns?

    Ascending triangles are commonly occurring bullish continuation patterns. Traders look for stocks that exhibit ascending ... Read Full Answer >>
  11. How do I identify a stock that is under consolidation?

    Consolidation is the term for a stock or security that is neither continuing nor reversing a larger price trend. Consolidated ... Read Full Answer >>
  12. Are continuation patterns useful in forex trading and stock trading?

    Technical analysts and traders use the term "continuation pattern" to describe seemingly random price movements that can ... Read Full Answer >>
  13. Why is a Diamond Top Formation important for traders and analysts?

    Diamond tops are, first and foremost, bearish reversal patterns. Trading based off of a double top is not very common. A ... Read Full Answer >>
  14. Why is the Accumulative Swing Index helpful for traders and/or investors?

    The accumulative swing index, or ASI, is typically used by investors involved in the futures markets, but it can also be ... Read Full Answer >>
  15. What are the main trading signals on the Accumulated Swing Index?

    The accumulative swing index uses a scale from zero to 100 for bull movements and zero to -100 for bear movements; subsequently, ... Read Full Answer >>
  16. Are Bollinger Bands® useful for analyzing highly volatile securities?

    Bollinger Bands are specifically designed to adjust to changes in a security's trading range, making them particularly useful ... Read Full Answer >>
  17. How can I determine a stock's next resistance level or target price?

    Determining where the price of an asset will stop once it has created a new high is one of the most difficult tasks for any ... Read Full Answer >>
Related Articles
  1. Active Trading

    Trading Failed Breaks

    Learn how to capitalize on the predictable behavior of others during breakouts and breakdowns.
  2. Options & Futures

    Backspreads: Good News For Breakout Traders

    This bullish trading strategy offers unlimited potential profit with limited risk.
  3. Trading Strategies

    What Your Trading Charts Aren't Telling You

    You may be missing some key statistics when following charts in the market.
  4. Options & Futures

    Capitalize On False Breakouts In The Danger Zone

    Sometimes you have to be a predator to profit. Find out how to cash in on false breakouts.
  5. Active Trading

    3 Reasons Not To Trade Range Breakouts

    Trading range breakouts is unprofitable for most novice traders; here are some alternatives that can be used.
  6. Trading Strategies

    The Anatomy Of Trading Breakouts

    We'll walk you through this trading strategy from start to finish.
  7. Active Trading Fundamentals

    Support And Resistance Reversals

    Discover how these influential levels can switch roles.
  8. Investing Basics

    Understanding Open-End Funds

    An open-end fund is a type of mutual fund that does not limit the amount of shares it issues, but issues as many shares as investors are willing to buy.
  9. Investing Basics

    What is a Nominal Value?

    The nominal value of a security, such as a stock or bond, remains fixed for the duration of its life.
  10. Fundamental Analysis

    Calculating Future Value

    Future value is the value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today.

You May Also Like

Hot Definitions
  1. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  2. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  5. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  6. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
Trading Center