Price leaves the range it's held so long:a breakout, be it weak or strong.
A price movement through an identified level of support or resistance, sometimes accompanied by increased volume and volatility.
Chart readers take it as a sign that the balance between buyers and sellers at that level has changed, but many breakouts fail: the price returns inside the range soon after, which is called a false breakout.
In plain words
A breakout is a move by the price through a level that had previously held it back: above resistance, a level where rises have stalled, or below support, a level where falls have stalled. Chart readers take it as a sign that the balance between buyers and sellers at that level has changed.
See it move
Price has crossed Resistance: Breakout
Why it matters
Many pending orders tend to sit just beyond well-watched levels, so a break can be fast and orders can be filled at worse prices than requested. Breakouts also fail: the price can cross a level and return inside the range soon after, which is called a false breakout.
Worked example
An example only. The figures are round and invented for the arithmetic: they are not market prices.
On an invented chart a pair has turned back from 1.1050 three times and then trades at 1.1065.
- 1Resistance1.1050
- 2Distance beyond it = 1.1065 − 1.1050 = 0.0015 = 15 pips
- 3A return to 1.1040 would put the price 10 pips back inside the range
The move 15 pips above resistance is a breakout; a return below 1.1050 would make it a false one.
A common mistake
A break of a level is not confirmation that a new trend has begun. Many breaks reverse, which is why the term false breakout exists.
Check yourself
Learn more
- Academy lessonSupport and resistanceWhat support and resistance are, how horizontal levels, trendlines and moving averages are drawn, and what breakouts and false breakouts look like.
- Academy lessonBollinger BandsHow Bollinger Bands are built from a moving average and standard deviation, what band width says about volatility, and how squeezes are read.
Educational information, not investment advice or a recommendation to trade.