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Breakout

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Breakouts are oftentimes seen as a major trading opportunity in any type of market. They occur when the price of a security moves abruptly above the support or below the resistance level. This signifies that traders are buying the asset with a conviction to drive the price further up or buying with a conviction to drive the price further down.

Typically, breakouts will be to the upside, as this signals traders to buy the asset and go long. This could also signal traders to cover their short positions. However, a breakout to the downside, signals traders to go short or sell long positions. Having said that, the success of a breakout will often depend on the relative volume surrounding the move.

A breakout with relatively high volume shows conviction and interest, meaning that the price is more likely to continue moving in the breakout direction. However, a breakout with low relative volume is more prone to failure, resulting in the price reversing and not trending in the breakout direction. Low volume breakouts can be an indication of a false breakout.

In conclusion, breakouts provide traders with possible trading opportunities in any type of market. Nevertheless, it is important to note that breakouts give no guarantee of a trend continuing in the breakouts direction as it is difficult to determine whether it is a genuine breakout. Therefore, traders should use caution when entering positions and should make sure to consider the relative volume before doing so.

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