Breakouts & Breakdowns -- Stock Tracker

Patterns

Breakouts & Breakdowns

A breakout is when price moves above a resistance level -- a price ceiling the stock has failed to break through multiple times. A breakdown is the opposite. High-volume breakouts are among the highest probability setups in trading.

What creates resistance levels

Previous highs: sellers who bought at the top want to 'get out even.'
  Round numbers ($100, $500): psychological anchors -- large options positions cluster here.
  Moving averages: MA50 and MA200 act as dynamic resistance in downtrends.
  52-week highs: many institutional mandates require stocks at new highs.

Valid vs false breakout

Valid breakout signs:
  - Price closes above resistance (not just touches and retreats)
  - Volume is 1.5x or more the 20-day average on breakout day
  - Breakout happens in a healthy market (SPY not in downtrend)

False breakout (fakeout):
  - Breaks above resistance on low volume, then closes back below
  - Often a trap for retail buyers; institutions sell into the move

✓ Quick Tips

The best breakouts are from long, tight consolidation bases (4+ weeks).
A stock breaking to all-time highs has zero overhead resistance -- can run far.
After a breakout, the old resistance level becomes new support.
If a breakout fails quickly, exit -- false breakouts often reverse hard.

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