breakout
A move of price beyond a support or resistance level, which may continue or may fail.
A breakout is a move in which price goes beyond a previously observed support or resistance area. People use the word to describe the move, but it does not say whether the price will keep going.
Some breakouts continue; others quickly return to the earlier range. The chosen timeframe and the way the area is drawn affect whether a move counts as a breakout. A chart pattern is evidence about recorded prices, not a certain forecast.
Example
Spark Coin has traded between $10 and $12 in this invented example. Its observed resistance area is $11.80–$12.00. A close at $12.20 is $0.20 above the top of that area, so it qualifies as a breakout under the rule used here. One close is not proof of continuation: the next period could close back below $12.
Common mistakes
- Calling every small move outside a level a meaningful breakout. The result can depend on timeframe and the chosen area.
- Assuming a breakout will continue. It may reverse into the range.
- Ignoring trading costs and the distance to a planned exit. A move on a chart is not a net result.
- Treating the pattern as a guaranteed signal. Most people who trade lose money.
Learn it in the course
- Support, resistance and breakouts · Mark the prices where the market turned before, and see why a breakout can be real or a trap, and what a level can and cannot tell you.