A breakout occurs when the price of a cryptocurrency asset breaks out of its normal price range, either moving above the resistance level (a price point where the asset previously struggled to go higher) or below the support level with increased volume, indicating the price may move further in the breakout direction.
A breakout usually requires higher-than-normal volume to sustain the trend, as higher volume indicates greater market interest, supporting the breakout’s legitimacy. When the price moves above a resistance level, it indicates that buyers have gained control, and further upward movement may be expected.
However, at times, breakouts can be false, where the price moves temporarily beyond support or below resistance but quickly reverses. This is why volume and other indicators, like the Relative Strength Index (RSI) or stochastic oscillator, are often used to confirm a breakout’s strength.
Traders often use breakouts as entry points for positions in hopes of riding the trend following a breakout.
