Breakout

If a stock has traded in a narrow range for some time (in other words, built a base) and then advances above the resistance level, this is said to be an upside breakout. Breakouts are suspect if they do not occur on high volume (compared to average daily volume). Some traders use a buy stop, which calls for purchase when a stock rises above a certain price.

The opposite of upside breakout is called penetration of support or breakdown. In the same way that a trader can set a buy stop to enter a position on an upside breakout, a trader can set a sell stop to exit a position on breakdown.

 

 

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