What is breakout trading & how does it work?

Breakout trading occurs when a stock price moves beyond either an area of support or resistance with an increased volume. Once the price breaks, there is an increase in volatility and an increased chance for the price to trend in the direction of the breakout.

What does a breakout mean?

A breakout refers to when the price of an asset moves above a resistance area, or moves below a support area. Breakouts indicate the potential for the price to start trending in the breakout direction. For example, a breakout to the upside from a chart pattern could indicate the price will start trending higher.

What is a breakout entry & how does it work?

This is because support and resistance levels are seen as strong signals where prices tend to stop. One way of using the breakout entry is to get into a trade when the price has breached a resistance level. For many traders, a breach of the resistance level means the price has the momentum to go higher.

What are the different types of market breakouts?

Breakouts occur in all types of market environments. Typically, the most explosive price movements are a result of channel breakouts and price pattern breakouts such as triangles, flags, or head and shoulders patterns. As volatility contracts during these time frames, it will typically expand after prices move beyond the identified ranges.