Positive surprises can lead to bullish breakouts, while negative surprises can lead to bearish breakouts. Bullish sentiment, driven by positive news or optimistic market expectations, can lead to bullish breakouts, while bearish sentiment can result in bearish breakouts. For example, in a bearish trend, a reversal breakout may occur when the stock price rises through the previous low on strong volume. Traders and investors utilize breakouts to spot substantial profit opportunities and define risk levels by setting clear stop-loss orders.

A trend line is a more definite breakout level because it is a line, but even with a trend line, a false breakout often occurs and requires redrawing of the trend line. In both these instances, a penetration of the breakout level or trend line requires confirmation. Penetrations often occur on an intrabar basis, and then the price closes back on the nonbreakout side of the breakout level or trend line. For an example of an intrabar penetration, see Figure 13.1, a trading range with two false, intrabar breakouts—one up and one down. In forex technical analysis, a breakout refers to a price movement that breaks through an established support or resistance level. In simple terms, when a currency pair’s price shoots up or plummets, breaking past a previous boundary, we call it a “breakout.” Ah-ha!

The first requirement for a breakout is a penetration of a trend line, or support or resistance zone. The next requirement is confirmation that the penetration is a real breakout, not a false one. While breakouts occur on individual assets, they are influenced by broader market trends and events.

Gold Clobbered after Fakeout; EUR/USD, Nasdaq 100 Hit by Rebound in US Yields

The bullish stance is reinforced by the emergence of an inverted head and shoulder pattern, a bullish price pattern. Concurrently, the RSI on the weekly chart, originating from a support level, signals room for further price ascents. Based on the long-term technical analysis for Kroger as shared in the previous article, a bullish trend is revealed.

A breakout occurs most often when a price “breaks out” through a prior support or resistance level or zone. A breakout often but not always signals that a significant change in supply and demand has occurred and that a new price trend is beginning. For this reason alone, a breakout is an extremely important signal to the investor or trader. A breakout can also occur at a trend line, which as the previous chapter noted, is just a moving support or resistance level.

Surprisingly, the right shoulder is rather shallow, which means that buyers were rather impatient coming into the market. All that is still missing would be the breakthrough and above the neckline at USD 2,075. A comparable situation was last observed approximately 14 years ago. Back then, gold had been attacking the USD 1,000 mark for many months.

Where to Set a Stop Order

As a price filter for confirmation of a breakout, by including a multiple of the ATR, the breakout level is adjusted for the volatility of the security. As you can see in Figure 13.4, an ATR filter expands and contracts over time as price volatility changes. For example, if price volatility increases, daily true ranges will expand, and the ATR will be larger, making it less likely to have a false breakout due to the increased price volatility. This means that a highly volatile security will have a wider filter to reduce its likelihood of making a false breakout just because of its higher volatility. On the other hand, a dull security that has few wild moves will have a narrow filter that will trigger the breakout with only a minimum deviation from its usual range. The subsequent breakout rally is likely to be spectacular, like the one in 2009, considering the significant energy accumulated in the gold market over the past 12 years.

It has also demonstrated resilience against macroeconomic uncertainties, indicating a degree of investment security. From a market risk perspective, potential challenges include economic downturns, regulatory changes, leadership changes, and critical resistance levels in stock performance. As Kroger breaks the resistance at the $51 mark, investors might accumulate long positions, aiming for a higher price in the near future. A breakout is when prices pass through and stay through an area of support or resistance. On the technical analysis chart a break out occurs when price of a stock or commodity exits an area pattern.

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Figure 13.6 gives a hypothetical example of price activity hinting that a breakout may soon occur. Resistance has existed in the past and has stopped the first price rally. If volume increased on the initial rise to resistance but declined on the correction to C, C becomes a possible entry point in anticipation of a breakout above resistance. A trade-off always exists between the higher risk of entry prior to the breakout and the higher reward of a cheaper entry price. At B, assuming again that volume has increased with the small rally, the odds of a breakout have increased over C, but the price is not quite as advantageous.

Risk Management in Breakout Trading

Price Data sourced from NSE feed, price updates are near real-time, unless indicated. Technical/Fundamental Analysis Charts & Tools provided for research purpose. Please be aware of the risk’s involved in trading & seek independent advice, if necessary. If achieved by the end of November, an initial surge to the all-time high around USD 2,075 is expected to follow. As each attempt to breach a resistance level weakens its resistance, the fourth or, at the latest, the fifth attempt at the all-time high should result in a successful breakthrough.

At the same time, the longer these support and resistance levels have been in play, the better the outcome when the stock price finally breaks out. A breakout, a significant financial concept, refers to the scenario where a security’s price moves beyond a predetermined support or resistance level with increased volume. A continuation breakout occurs when the price of an asset breaks through a resistance level in an uptrend or a support level in a downtrend, signaling that the existing trend will continue. A breakout refers to a scenario where the price of a stock or other investment vehicle breaks through a previously defined support or resistance level with increased volume.

After a breakout, old resistance levels should act as new support and old support levels should act as new resistance. This is an important consideration because it is an objective way to determine when a trade has failed and an easy way to determine where to set your stop-loss order. After breakout technical analysis a position has been taken, use the old support or resistance level as a line in the sand to close out a losing trade. The major problem from the analyst’s standpoint is that when the penetration is occurring, there is usually no other confirming evidence until after the close of trading.

With a dividend yield of around 2.25%, it offers a steady and recurring income stream. This strength was underscored when the company announced an impressive 11.5% rise in its quarterly dividend, illustrating the growth potential accompanying the regular income. Kroger’s resilience against economic downturns is attributable to the consistent demand for groceries, ensuring stability in the face of market uncertainties. As the costs of goods and inflation become a concern for investors, Kroger’s ability to adjust its prices in response safeguards its margin, reinforcing its position as a trustworthy investment. Like anything else in life, technical analysis has its pros and cons.

Gold prices utilized this support as a springboard and have overcome the resistance zone around USD 2,000. Given the clearly overbought weekly stochastic, legitimate doubts arise regarding this highly bullish perspective. Ideally, and despite the overbought conditions, gold prices would advance towards the neckline at USD 2,075 in the next one to three weeks.

GBPUSD Technical Analysis –

Some traders even wait for two bar closes beyond the breakout level for confirmation. This increases the risk that some part of the move subsequent to the breakout will be missed; on the other hand, it increases the possibility that the breakout is real. The lingering concern is the open price gap (“Hamas Gap”) at USD 1,830. While the daily stochastic is significantly overbought, the oscillator is about to transform into an embedded super-bullish state. This would secure the uptrend, likely propelling prices towards USD 2,075 to USD 2,125 more or less directly.

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