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. Momo Play

    A slang term used to describe an advanced trading strategy based ...
  2. Resistance (Resistance Level)

    A chart point or range that caps an increase in the level of ...
  3. Support (Support Level)

    The price level which, historically, a stock has had difficulty ...
  4. Trendline

    A line that is drawn over pivot highs or under pivot lows to ...
  5. Pattern

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

    A falling back of a price from its peak. This type of price movement ...
Related Articles
  1. Trading Failed Breaks
    Active Trading

    Trading Failed Breaks

  2. Backspreads: Good News For Breakout ...
    Options & Futures

    Backspreads: Good News For Breakout ...

  3. What Your Trading Charts Aren't Telling ...
    Trading Strategies

    What Your Trading Charts Aren't Telling ...

  4. Capitalize On False Breakouts In The ...
    Options & Futures

    Capitalize On False Breakouts In The ...

Hot Definitions
  1. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  2. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  3. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  4. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  5. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  6. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
Trading Center