#BreakoutTradingStrategy Breakout trading is used by active investors to take a position within a trend's early stages. Generally speaking, this strategy can be the starting point for major price moves, and expansions in volatility and, when managed properly, can offer limited downside risk. Throughout this article, we'll walk you through the anatomy of this trade and offer a few ideas to better manage this trading style.

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The Anatomy of Trading Breakouts

By James Chen Updated September 25, 2024

Reviewed by Khadija Khartit

Fact checked by Suzanne Kvilhaug

Part of the Series

Guide to Technical Analysis

Breakout trading is used by active investors to take a position within a trend's early stages. Generally speaking, this strategy can be the starting point for major price moves, and expansions in volatility and, when managed properly, can offer limited downside risk. Throughout this article, we'll walk you through the anatomy of this trade and offer a few ideas to better manage this trading style.

A breakout is a potential trading opportunity that occurs when an asset's price moves above a resistance level or moves below a support level on increasing volume.

The first step in trading breakouts is to identify current price trend patterns along with support and resistance levels in order to plan possible entry and exit points.

Once you've acted on a breakout strategy, know when to cut your losses and re-assess the situation if the breakout sputters.

As with any technical trading strategy, don't let emotions get the better of you. Stick with your plan and know when to get in and get out.