Breakout Trading
Buy when price decisively clears a well-defined resistance level or consolidation range on expanding volume, and ride the new trend.
The thesis — why it works
A price range is a temporary truce between buyers and sellers. When price decisively breaks out of it, that truce has ended in one side's favour — new demand, or exhausted supply, has shifted the balance.
- Resistance flips to support. Traders who sold short at the old ceiling are now underwater and become buyers on any retest; traders who missed the base chase the move.
- Volume confirms intent. A breakout on volume well above average suggests real (often institutional) participation, not noise; a breakout on thin volume is far more likely to fail.
- Momentum persistence. Documented momentum effects (Jegadeesh & Titman and others) show stocks that start trending tend to keep trending for weeks to months — the breakout is simply the earliest visible signal of that.