Definition
Breakout
A breakout is when price moves decisively beyond a defined support, resistance, or pattern boundary, often starting a new move.
A breakout above resistance or out of a consolidation pattern signals that buyers have overwhelmed sellers, while a breakdown below support signals the reverse. Traders enter in the breakout direction, ideally when it is confirmed by a surge in volume that shows conviction behind the move.
The main risk for Indian traders on Nifty, Bank Nifty, and stocks is the false breakout (or bull/bear trap), where price pokes past a level and then reverses, trapping breakout buyers. Waiting for a close beyond the level, a volume spike, or a retest helps filter genuine breakouts from traps.
Related terms
- Triangle PatternA triangle is a consolidation pattern of converging trendlines — ascending, descending, or symmetrical — that precedes a breakout.
- Gap Up / Gap DownA gap is when a stock or index opens significantly above (gap up) or below (gap down) the previous close, leaving an empty space on the chart.
- Support and ResistanceSupport is a price level where buying tends to halt a fall; resistance is a level where selling tends to cap a rise.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.