What is a Breakout in Cryptocurrency?
In cryptocurrency, a breakout is when the price of a specific cryptocurrency goes above a predefined resistance level or below a support level. Breakouts are used in technical analysis. They are often sudden and accompanied by high trading volumes and increased volatility.
Breakouts can either be bullish or bearish.
A bullish or upward breakout occurs when a crypto’s price moves above the resistance level. The resistance level is the price point where the upward movement of a cryptocurrency’s price stops due to significant selling pressure.
A bearish breakout (also called a downward breakout or breakdown) occurs when the price of a cryptocurrency falls below the support level. The support level is a specific price point where the downward movement of a cryptocurrency’s price stops due to significant buying pressure.
However, if a breakout doesn’t sustain the trend of its direction, it becomes a fakeout, also called a false or failed breakout. This occurs when the price moves beyond the resistance or support area but quickly reverses.
A bullish breakout is a technical sign that the buying pressure is stronger than ever, while a bearish one indicates an intensified selling pressure. As such, bullish breakouts may signal a new upward price trend. Bearish breakouts may signal the start of a new downward trend with the potential to reach new lows.
How Do You Identify Crypto Breakouts?
Breakouts are used in technical analysis to identify potential price movements beyond key support or resistance levels. Traders recognize breakouts by studying historical price movements or analyzing chart patterns and line charts.
Investors can also gain insight into price trends by identifying the existing resistance and support areas. This can be achieved by observing crypto trading columns, or using technical indicators such as Moving Averages, Bollinger Bands, or Relative Strength Index (RSI).