Ticker tape by TradingView

Create a Trading Plan Using Our FREE Template

DOWNLOAD FREE

Breakout Trading

Big Idea: Breakout trading is essentially when price breaks above or below a support or resistance level. Lots of traders like this type of trading because of its potential volatility upon the breakout. Although this style can help traders make significant gains, they don’t always work out, which is called a “false breakout”.

Example

This is an example of a real breakout. Price tests highs three times which makes it a strong resistance level. When price hits that level for the fourth time, it finally breaks above, and candles continue to push upwards shortly after. One thing that is important to look for is how the candle closes on that specific time frame. For a breakout to occur, the candle must usually break above and close above resistance. Otherwise, you could be looking at a false breakout.

This is an example of a false breakout. Here, price tests resistance and breaks above. However, price cannot maintain itself at this level and comes back down leaving a long wick on the top of the candle. Price failed to close above the resistance zone even though it touched above it; that means price will have to make a second test to see whether or not it can really break out.

Key Takeaways

-A breakout is when price moves out of a channel with heavy volatility to the upside or downside

-A true breakout usually occurs when price rises above or below support or resistance and closes above/below

-A false breakout happens when price breaks above or below a certain level and cannot keep momentum in that direction.

Breakout Trading Resources

What's Next?

Keep learning about technical analysis!
  • SUPPORT & RESISTANCE

    Learn how to use the number 1 most commonly used price action tool!
    BEGIN LESSON

    MOVING AVERAGES

    Learn all about moving averages, and how to trade with them!
    BEGIN LESSON

    RELATIVE STRENGTH INDEX

    Learn all RSI, and how to trade with it!
    BEGIN LESSON
  • ENGULFING & PINBAR CANDLESTICK PATTERN

    Learn all about engulfing & pinbar candlestick patterns, how to spot them, and how to trade them!
    BEGIN LESSON

    HAMMER CANDLESTICK PATTERN

    Learn all about hammer candlestick patterns, how to spot them, and how to trade them!
    BEGIN LESSON

    CANDLESTICK PATTERN BASICS

    Learn all about candlestick patterns, how to spot them, and how to trade them!
    BEGIN LESSON
  • REVERAL TRADING

    Learn how to spot markets reversing early, and get involved!
    BEGIN LESSON

    HEAD & SHOULDERS PATTERN

    Learn how to use this popular reversal method in your trading
    BEGIN LESSON

    BUILDING A TECHNICAL BIAS

    How to use technicals to assist your trading entries
    BEGIN LESSON
Risk Management Handbook

UNLOCK NOW

Become a VIP member to unlock the Risk Management Handbook! Use code "READER" For 10% OFF!
LEARN MORE
Our Top Brokers

LOOKING FOR A BROKER?

We've shared a list of our favorites, Check them out!
VIEW BROKERS
homepencilpaperclipfile-emptybookmarkscreensmartphonehighlight linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram