What is breakout?
It refers to the movement of an asset – such as shares, bonds or commodities above or below a pre-identified price level, known variously as a resistance line or a psychologically-important point. Traders may use a breakout as the moment to buy or sell any asset.
Where have you heard about breakout?
It features in market reports of trading on the stock market, foreign exchanges and elsewhere. Analysis from banks and brokers to their clients may well refer to breakout points, and investment guides may do so as well.
What you need to know about breakout.
Breakout points are largely artificial, having been identified by traders and others and therefore subject to human error. Nevertheless, if sufficient dealers and investors take them seriously, and heavy buying or selling is the result, then they may become self-fulfilling. That means that investors cannot ignore them. They are identified by market players after study of previous trading patterns indicating that the asset in question has 'met resistance' at this point, either on the way up or down. While conventional investors will bear these breakout points in mind, technical, or 'chart', investors go much further, basing their strategy largely on observation of patterns around such points and levels.
Find out more about breakout.
To learn more about breakout and how it fits into investment strategies, see our definition of technical investing.