Chapter 1: Chart Pattern Breakouts

Breakouts

A breakout is defined as price movement above or below a predefined level. A breakout backed by a surge in volumes is considered to be more reliable to act upon. A trader trading on the basis of breakouts would consider entering a long position once price moves above a resistance level or would consider a short position after price falls below a support level.

The reason chart pattern breakouts have gained popularity is because they are easy to identify, frequent in occurrence and are the starting point for a major reversal in trend or continuation accompanied by a surge in volatility.

Most of the results obtained with technical analysis procedures do not indicate the eventual magnitude of a trend but chart patterns tend to act as an exception, since their formation provides the technical analyst with limited forecasting abilities.

Chart patterns can be over any time frame – intraday, daily, weekly and monthly. In the following section we cover some of the common chart patterns which tend to witness a spike in prices after a breakout.

Chart Patterns are broadly classified into two categories: continuation and reversal patterns