breakout
When a security's price moves above a resistance level or below a support level on high volume, potentially signaling the start of a new trend.
Example
“After months of consolidation below $100, the stock broke out on triple the average volume — a bullish signal.”
Memory Tip
BREAKOUT = price BREAKS OUT above resistance or below support. New trend begins.
Why It Matters
Understanding breakouts helps investors and traders identify potential trend changes, which can inform decisions about when to enter or exit positions. For everyday investors, recognizing breakouts can improve timing of buying or selling stocks, potentially leading to better returns on investment portfolios.
Common Misconception
Many people believe that every breakout automatically guarantees a profitable trade or that the price will continue moving in that direction indefinitely. In reality, breakouts can be false signals that reverse quickly, and success depends on proper risk management and confirmation of the trend over time.
In Practice
If a stock has been trading between 45 and 55 dollars for several months, and suddenly the price jumps above 55 dollars on triple the usual trading volume, this would be considered a breakout above resistance. A trader might interpret this as a signal to buy, expecting the price to continue climbing, though they would typically set a stop loss below 55 dollars to protect against a false breakout.
Etymology
BREAK (surpass, push through) OUT (beyond a boundary). The price BREAKS OUT beyond a key level.
Common Misspellings
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See Also
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