A breakout occurs when price moves beyond a key level used by traders to enter trades early in trends. These key levels are often:
- Support and resistance zones
- Previous highs or lows
When price breaks above resistance, it can signal a potential uptrend. A breakdown below support may indicate bearish pressure.
Breakouts are most reliable when:
- Not false spikes
- Supported by strong momentum
For instance, united parcel service invest if Tesla breaks out of a long-term range, traders might enter long positions. Breakouts from chart patterns like:
- Double bottoms
often result in significant price changes.
Breakout traders also watch for:
- Volume confirmation
- Price acceleration after breakout
Breakout trading can be highly profitable, but only when combined with good timing.
Popular tools to identify breakouts include:
- Bollinger Bands
- Multi-timeframe analysis
