Definition
The term breakout refers to the upward price movement of a security through what was previously identified as a price resistance point. When breakout occurs, the security will experience relatively heavy trading volume too.
Explanation
The upward price movement of a security or market will normally reach a point at which it demonstrates significant resistance to additional upward movement. A market may test this resistance level and fail to breakthrough it on a number of occasions.
Breakout is said to occur when the price of the security moves higher than the previously identified resistance price point. Breaking through this price point is considered a positive sign for a security, so the upward price movement is normally accompanied by higher than normal trading volumes too.
As is the case with resistance and support price points, breakout is a function of supply and demand for the security on the secondary market. As supply and demand are in equilibrium at the resistance point, it's possible for the security to eventually move higher. Breakout can also occur on positive news. For example, if a company's earning exceed analyst estimates, their common stock may increase beyond the resistance price point as the market creates new expectations concerning the company's future earnings potential.
Related Terms
- The term pin risk refers to a threat that an option held by the seller will expire at-the-money or near-the-money. Pin risk is a function of both the underlying asset's price as well as time.
Moneyzine EditorSeptember 20th, 2023 
The term leg refers to one component of an options trading strategy that is constructed using two or more components. A trader may combine multiple derivative contracts, or legs, in order to profit from spreads or hedge a position.Moneyzine EditorSeptember 20th, 2023- The term resistance refers to a price point above which movement is impeded by the economic law of supply and demand. Resistance to movement above this price point typically occurs over an extended period of time.Moneyzine EditorSeptember 21st, 2023
- The term support refers to a price point below which movement is impeded by the economic law of supply and demand. A support price point is identified through many observations and typically occurs over an extended period.Moneyzine EditorSeptember 21st, 2023
The term liquid market refers to a marketplace characterized by robust trading, narrow bid and ask spreads, and low transaction costs. Liquid markets can also accept relatively large trades and not experience significant price swings.Moneyzine EditorJanuary 23rd, 2024
