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. Halloween Strategy

    An investment technique in which an investor sells stocks before May 1 and refrains from reinvesting in the stock market ...
  2. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  3. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  4. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  5. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  6. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
Trading Center