Break outs and Break downs Levels are the two of the most significant aspects of technical analysis that help you trade and invest in the market with a lower risk. While a break out signals a bullish run in the stock, a break down suggests a bearish trend in the stock.
Let’s read about Break Out and Break Down levels in depth so that you can make informed online stock trading decisions.
What are Break Outs?
A break out indicates a bullish or an upward movement towards the resistance or the pressure of selling the assets. The movement is upward because the prices surpass the pressure area, and also, there is a growth or increase in strength and volume that henceforth triggers this move. This is known as break out.
During a break out, the trade volumes remain high, and the same is visible in the charts as they reach above the black line that indicates the trading volumes, causing a bullish engulfing candlestick pattern formation.
When there is a break out, it should be after a consistent pattern, say after four or five points, to ensure that it is a genuine break out, but the chances of failure are very high in case of no consolidation, i.e., a direct break out. This should be tested multiple times, and you must be very sure about them to avoid failures.
What are Break Downs?
Break downs indicate a bearish move or a downward movement in the security’s price below its crucial support levels. A break down is considered a negative phase for a stock during which its prices are perceived to fall in the future.
Just like break outs, trade volumes remain high during a break down also due to which the breaks get past the black line which indicates the volume levels for the stocks, thereby causing a bearish engulfing candlestick pattern formation.
A huge consolidation is usually noticed before a break down, indicating their genuineness. If you do not observe a consistent consolidation, it could be because of prices moving up in the future. So, do check for this while doing technical analysis for break downs.
Significance of Break Out and Break Down Levels
Clear and consistent identification of both of these can create a possibility of consistent gains. This may even provide quick returns in a shorter period. Understanding the concept of both breakout and breakdown helps in decision-making. It helps you identify and exit unprofitable trades that involve high risks.
Conclusion
When you are trading, it becomes important for all of you to understand the stock market trends and chart patterns that provide you with early signals for buying and selling securities. This is especially true for break out and break down levels of different stocks, as they can guide you about the upcoming trends in the price of these securities. However, always be patient while doing the technical analysis for online stock trading and make sure the identified break out and break down levels are genuine before acting on them.
