Breakouts occur when price moves out of an established trading range or pattern, or past some other kind of support or resistance level, such as a 20– or 40–day high or low. Breakouts have traditionally been interpreted as signs of price momentum in the direction of the breakout: If price breaks out to a new high, it is likely to continue rising, and if it breaks out to a new low, more selling is likely to follow.

The significance of a breakout is typically related to the perceived magnitude of the support or resistance being broken i.e., a push above a 40–day high is seen as more meaningful than a move above a 10–day high. However, simple testing shows breakouts above or below such well–known levels are hardly guaranteed to follow through.