What is Breakout?
Let's find out Breakout meaning, definition in crypto, what is Breakout, and all other detailed facts.
A breakout is a process in technical analysis which occurs when the movement of the price of a certain asset changes. It usually signals that the price will go in the direction of the breakout. Besides that, breakouts are usually followed by reduced volatility.
Breakouts can occur as a result of price pattern breakouts. There are various pattern breakouts, however, some of the most common ones include wedges, triangles, head and shoulders patterns, or flags. In addition, breakouts can occur as range or channel breakouts.
Essentially, the consequences of the breakout depend on how long it is. A lot of traders utilize the same price levels to set their stop-loss orders when the levels are well defined. When these stop orders start happening, a domino effect might occur. This would most probably result in a quick price shift.
Breakout trading can be used in almost any trading style. The logic behind trading based on breakouts is not complicated. If the price is held within a range by support and resistance levels, a greater move might be signaled by the break of that range.
Based on the direction of the move, a breakout can be an indication to buy or sell. Once the price has gone outside of the established support or resistance range, a breakout trader can choose a position he wants to enter. He could either enter a long or a short position.
However, breakouts are subject to interpretation. Different traders might interpret support and resistance levels differently. Besides, the chart patterns that serve as the foundation for breakouts are also very subjective.
Though keep in mind that a fakeout, also known as a false breakout, could occur as well. It usually happens if the price breaks outside of a set range but immediately returns back to it. Some traders wait for the confirmation of the breakout on higher timeframes before entering a trade as a safeguard against fakeouts.