Breakout

Definition

The term breakout refers to the upward price movement of a security through what was previously identified as a price resistance point.  When breakout occurs, the security will experience relatively heavy trading volume too.

Explanation

The upward price movement of a security or market will normally reach a point at which it demonstrates significant resistance to additional upward movement.  A market may test this resistance level and fail to breakthrough it on a number of occasions.

Breakout is said to occur when the price of the security moves higher than the previously identified resistance price point.  Breaking through this price point is considered a positive sign for a security, so the upward price movement is normally accompanied by higher than normal trading volumes too.

As is the case with resistance and support price points, breakout is a function of supply and demand for the security on the secondary market.  As supply and demand are in equilibrium at the resistance point, it's possible for the security to eventually move higher.  Breakout can also occur on positive news.  For example, if a company's earning exceed analyst estimates, their common stock may increase beyond the resistance price point as the market creates new expectations concerning the company's future earnings potential.

Related Terms

liquid market, support, resistance, leg, pin risk