Breakout and breakdown
Also known as: breakout, breakdown
A breakout happens when a 's price moves decisively above a it had previously struggled to clear, and a breakdown is the mirror image, when price moves decisively below a it had previously held above. Both terms describe a leaving an established rather than continuing to bounce within it.
Volume is usually treated as the key ingredient that separates a meaningful breakout or breakdown from a temporary blip. A move above resistance on light is often viewed with suspicion, since it may simply reverse back into the prior range once the initial push fades. A move on volume well above the 's average is read as a stronger signal, suggesting real buying or selling conviction is behind the move rather than a handful of trades pushing price around in thin conditions.
Traders who follow breakouts and breakdowns as a strategy typically buy once price clears resistance, on the idea that a level that once trapped sellers can flip into a floor of support once cleared, and sell or short once price breaks support, on the same logic in reverse. The main risk with this approach is the , where price pokes through the level and then quickly reverses back inside the old range, trapping traders who entered expecting the move to continue.