Breakout When a stock breaks out of a trading pattern, it typically signifies a potential shift in market sentiment and often leads to significant price movement. Here’s what happens:
1. Increased Momentum: When a stock breaks out of a trading pattern, such as a range, triangle, or head-and-shoulders pattern, it often does so with increased trading volume. This increased momentum can lead to accelerated price movement in the direction of the breakout;
2. Confirmation: Confirmation after a breakout ensures it's not a false move. It means a sustained move beyond the breakout level or a retest of the breakout point that holds as a new support;
3. New Trend Formation: A breakout above a resistance marks the beginning of a new uptrend;
4. Psychological Impact: Breakouts trigger psychological reactions, attracting buyers who were previously waiting for a clearer trend, while a breakdown below support can cause sellers to act to avoid further losses.