Breakouts in technical analysis

Breakout is a common term of technical analysis (TA) that refers to a price movement of a stock, that breaks above or below a significant level of support or resistance often with increased volume. In short, a breakout refers to a significant price movement that happens when the price of an asset surpasses a certain level of resistance or support. This can be a strong signal of a potential trend reversal or continuation of an asset.

Examples of breakout patterns:

Bullish breakout: A bullish breakout occurs when the price of an asset breaks above a significant level of resistance. This can be a strong signal of a potential trend reversal, with buyers entering the market and pushing the price higher. It's also known as 'Resistance Breakout'.

• For example, if the price of a stock has been trading in a range between Tk. 50 and Tk. 60 for several months or a certain period of time, a breakout above Tk. 60 could signal a bullish trend or resistance breakout.

Bearish breakout: A bearish breakout occurs when the price of an asset breaks below a significant level of support. This can be a strong signal of a potential trend reversal with sellers entering the market and pushing the price lower. It's also known as 'Support Breakout'.

• For example, if the price of a stock has been trading in a range between Tk. 50 and Tk. 60 for several months or a certain period of time, a breakout below Tk. 50 could signal a bearish trend or support breakout.

Triangle breakout: A triangle breakout occurs when the price of a stock breaks above or below a triangle pattern. This pattern is formed by drawing two trend lines, one connecting the higher highs (HH) and another connecting the higher lows (HL). When the price breaks above the upper trend line then it signals a bullish breakout and when it breaks below the lower trend line then it signals a bearish breakout.

Head and shoulders breakout: A head and shoulders breakout happens when the price of an asset breaks below the neckline of a head and shoulders pattern. This pattern is formed by a peak (the head) between two smaller peaks (the shoulders) with a neckline connecting the lows. When the price breaks below the neckline, it signals a bearish breakout with sellers entering the market and pushing the price lower.

Trendline Breakout: Trendlines are drawn on a price chart to connect a series of highs or lows representing the trend direction. A trendline breakout occurs when the price breaks above a downtrend line or below an uptrend line indicating a potential reversal in the trend.

• For example, if a stock has been in a downward trend and the price breaks above the downtrend line it could be a bullish signal and called downward trendline breakout.

Moving Average Breakout: Moving averages (MA) are most commonly used technical indicators that smooth out price data over a specific period length like- 20, 50, 200 etc. A moving average breakout takes place when the price moves above or below of a moving average, suggesting a potential change in the trend.

• For example, if a stock's price crosses above its 50-day moving average, it may be considered a bullish breakout. On the other hand, if the price crosses below the moving average then it may be considered a bearish breakout.

It is important to note that, breakouts are not unfailing signals and can sometimes result in false moves or fake breakouts. Analysts, traders or investors often use additional technical analysis tools and indicators to confirm breakouts and make informed or gnostic decisions.