Glossary
Breakout
A move of price through a support or resistance level or out of a chart pattern, often watched for a pickup in volume.
On this page
A breakout happens when price moves decisively beyond a level that has contained it, such as resistance at the top of a trading range, a trendline or the boundary of a chart pattern. A move below support is the same idea in reverse, usually called a breakdown. Traders watch breakouts because they often mark the point where a pause turns into a new trend, as buyers or sellers overwhelm the other side.
How traders define one
Definitions vary, but most combine three checks:
- A clear level. The more times price has reversed at it, the more meaningful the break.
- A close beyond the level, not just an intraday poke, sometimes by a minimum margin such as 1% or a fraction of the average true range.
- Higher volume than usual, suggesting genuine new demand.
What can go wrong
Many breakouts fail. Price pushes through, triggers buy orders and stops, then falls back into the range, a pattern known as a bull trap (or a bear trap for a failed breakdown). Breakouts in low volume, against a falling broad market or right before earnings are especially prone to fail.
Some traders wait for a retest, a pullback to the old level that now holds as support, before acting, which gives up some of the move for a lower chance of a false signal. Gaps through a level at the open add another twist: the fill price can be well beyond the planned entry.