Almost every trading session we hear about a stock or equity breaking out. What exactly is a stock breakout? A breakout is defined by an equity moving above a resistance area after stalling or consolidating around that area for a period of time. Sometimes breakouts occur on heavy volume and sometimes they occur with average volume.
The best breakouts will obviously have heavy volume behind the move. This signals conviction from the buyers. Heavy volume breakouts will often lead to bigger moves to the upside in due time. For example, look at a chart of Tesla Inc (TSLA). The stock broke out on December 16, 2019 with heavy volume. That high volume breakout occurred at around the $360.00 level, since then the stock has surged to $594.00 a share.
Average volume breakouts must be monitored very closely because they can reverse sometimes. Should an average volume breakout reverse that will often lead to a major move in the opposite direction. Please understand, not all average volume breakouts will fail, but they can and do it more often then high volume breakouts. When average volume breakouts do fail they often lead to big moves to the downside. A good example of this was seen in U.S. Steel Corp (NYSE:X) on December 12, 2019. The stock looked like it was about to breakout on average volume and then simply reversed the next trading day. Today, U.S. Steel Corp (NYSE:X) is making new 52-week lows on the charts.
Traders that are interested in leaning these setups and how they work should scan through charts nightly. You will soon see how the high volume breakouts are usually so much better than the low volume breakouts.
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