Breakout

What is a '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.

BREAKING DOWN '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. 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. Buy Break

    A type of recommendation to buy an asset once the price is able ...
  5. Resistance (Resistance Level)

    A chart point or range that caps an increase in the level of ...
  6. Trading Channel

    When charting the price of an asset, this is the space on the ...
Related Articles
  1. Trading

    Support And Resistance Basics

    Understanding the concept of Support and Resistance in trading can drastically improve your short-term investing strategy.
  2. Trading

    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.
  3. Trading

    The Anatomy Of Trading Breakouts

    We'll walk you through this trading strategy from start to finish.
  4. Trading

    Support And Resistance Reversals

    Discover how these influential levels can switch roles.
  5. Trading

    Watch These 3 Stocks for Breakouts (SAP, ORI)

    These three stocks are close to short-term pattern breakout levels.
  6. Trading

    Watch for These Stock Breakouts (or Failed Breakouts) (MNK, ALLY)

    These stocks are setting up for a breakout. But it's important to keep in mind what could happen if the breakout fails to move as anticipated.
  7. Trading

    The Psychology Of Support And Resistance Zones

    Emotion drives the market more than you might realize. Find out how psychology affects support and resistance zones.
  8. Trading

    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.
  9. Trading

    Watch for These ETF Breakouts (RSX, TLT)

    These ETFs are close to breakout levels, which could set the stage for the next major rally or decline.
  10. Trading

    Long-term Upside Breakouts Close at Hand

    These three stocks are approaching major highs and resistance, and a breakout could mean another strong advance to the upside.
RELATED FAQS
  1. What is the difference between forex Pivot Points and forex Levels of Support & resistance?

    Understand the differences between pivot points and levels of support/resistance in an asset's price movements, both in and ... Read Answer >>
  2. What are the best technical indicators to complement the Volatility Ratio?

    Learn why using the volume indicator with the volatility indicator helps investors identify breakouts from established trading ... Read Answer >>
  3. What are some common strategies used when a stock is under consolidation?

    Read more about what trading opportunities can be realized while a stock is under consolidation and trading within a seemingly ... Read Answer >>
  4. 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 >>
  5. How do I build a profitable strategy when spotting wedge-shaped patterns?

    Learn how to trade wedge shaped patterns and when to buy or sell wedge breakouts with support and resistance levels to create ... Read Answer >>
  6. How do traders use Bollinger Bands® to identify a breakout?

    Learn how traders use Bollinger Bands to identify breakouts. Breakouts are moves in price to new highs. Buying breakouts ... Read Answer >>
Hot Definitions
  1. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  2. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  3. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  4. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  5. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  6. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
Trading Center