May, 2012 5:24 AM
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Breakout
Breakout defines a price move through previously determined areas of resistance or support.
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Normally traders would buy the assets when the price breaks above the resistance point (its previous high price) and sell when it breaks below (previous low price). Once a resistance is broken, it will become the next support level. Breakouts are usually followed by large trading volumes of the shares in question and high volatility.
Breakouts are also indicative of potential future evolutions. When a breakout occurs on high volumes of trading, it signals to traders that the respective shares will make key price movements in the direction indicated by the breakout. Thus, if the shares broke a resistance point, the price would go upward, while if the breakout was on a support level, the share price would start to decrease.
Breakouts can be caused by specific events – discovery, development, partnerships and alliances, or financial evolutions (for instance, major discoveries or inventions with high marketing potential, an announcement or anticipation of a partnership merger or a takeover).
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