This is a price point where selling pressure tends to outweigh buying pressure, causing the price to struggle to move higher. A breakout above a resistance level suggests that the price might continue to rise.
This is a price point where buying pressure tends to outweigh selling pressure, causing the price to struggle to move lower. A breakout below a support level suggests that the price might continue to fall.
A breakout occurs when the price of a security (such as a stock, currency pair, or cryptocurrency) moves outside a defined support or resistance level with increased volume. These levels can be horizontal (e.g., a specific price point like $100) or dynamic (like trendlines that slope upward or downward).
Breakouts are often seen as signals for potential large price movements, especially when they are accompanied by high trading volume, indicating strong conviction behind the move. Traders look for breakouts as potential entry points, assuming the price will continue moving in the direction of the breakout.
A retracement is a temporary reversal in the direction of a stock’s price that goes against the prevailing trend but is expected to resume in the same direction. Retracements are normal and occur when the price pulls back slightly after a breakout. They often represent minor corrections within a larger trend and are used to find potential buying opportunities after a breakout.
Example: If a stock breaks out above a resistance level (indicating a bullish move), a retracement might occur if the price temporarily pulls back to or near the previous resistance level, which may now act as support. Traders might use this retracement as an opportunity to enter a long position, betting that the price will resume its upward trend.