What Is a Breakout in Trading? How to Trade Support and Resistance
A breakout is when the price moves through an important support or resistance level and holds beyond it. A new move often begins after a breakout.
What counts as a breakout
Not every touch. A breakout is when a candle closes beyond the level, not just pokes through it with a wick. The higher the timeframe, the more significant the close. How to find the levels themselves is covered in support and resistance levels.
Signs of a reliable breakout
- A candle closes beyond the level.
- A rise in trading volume at the moment of the breakout.
- The breakout is in the direction of the higher-timeframe trend.
- The price holds beyond the level when it comes back to retest it.
How to enter
| Method | Pro | Con |
|---|---|---|
| Right after the close | You don't miss the move | More false breakouts |
| On a retest of the level | Tighter stop, fewer false signals | A retest doesn't always happen |
The stop-loss goes back on the other side of the broken level, with a buffer. If the price returns there, the breakout has failed — that's a false breakout.
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- A breakout is a candle closing beyond a level, not just a wick through it.
- Volume and the higher-timeframe trend make a breakout more reliable.
- The stop goes behind the broken level.
Frequently asked questions
What is a retest?
When the price comes back to a broken level. Broken resistance then often acts as support.
How can I tell a real breakout from a false one?
You can't know for sure in advance. A candle close, volume and a retest help, and a stop-loss protects you if you're wrong.
Can I trade a breakout without a stop?
No. Breakouts often turn out to be false, and without a stop a single such trade can do serious damage to your account.
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