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. Throwback

    A price move back toward the entry level of a security that has ...
  2. Momo Play

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

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

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

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

    In technical analysis, the distinctive formation created by the ...
Related Articles
  1. Trading Strategies

    How effective is creating trade entries when using Outside Days?

    Learn how outside days provide traders with an opportunity to enter a market with a limited risk level and the opportunity for high profits.
  2. Charts & Patterns

    How do I find stocks developing ascending triangle patterns?

    Learn more about the types of computer programs and software packages that can help traders scan the market for specific trading opportunities.
  3. Forex Strategies

    Are continuation patterns useful in forex trading and stock trading?

    Learn what a continuation pattern is in technical analysis and why it is useful in forex and stock market trading, and discover some potential pitfalls.
  4. Trading Strategies

    How do I identify a stock that is under consolidation?

    Discover the three major characteristics that stocks or securities exhibit when they are trading under a period of price consolidation.
  5. Trading Strategies

    Why is a Diamond Top Formation important for traders and analysts?

    Read about the rare diamond top formation, and learn how traders and technical analysts interpret this pattern when it shows on a price chart.
  6. Options & Futures

    Why is the Accumulative Swing Index helpful for traders and/or investors?

    Find out why J. Welles Wilder believed that the accumulative swing index could be used in the futures markets to indicate long-term trends.
  7. Trading Strategies

    What are the main trading signals on the Accumulated Swing Index?

    See what kind of trading signals technical analysts use based on the accumulative swing index for a particular trading instrument.
  8. Technical Indicators

    Are Bollinger BandsĀ® useful for analyzing highly volatile securities?

    Discover how the dynamic nature of Bollinger Bands makes them a very useful indicator for securities that have historically volatile trading ranges.
  9. Active Trading

    Trading Failed Breaks

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

    Backspreads: Good News For Breakout Traders

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

You May Also Like

Hot Definitions
  1. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  2. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  3. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  4. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  5. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  6. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
Trading Center