What is breakdown

Heavy volume should accompany a breakdown below key support levels, which shows participation in the move lower. Technical traders can either close out any existing long positions or short sell a security when it breaks below a support level, since that is a clear indication that the bears are in control and that additional selling pressure is likely to follow.

A breakdown often signals the start of a downtrend. When a security initially breaks down, traders should seek confirmation from several indicators and other chart time-frames to ensure the move is not a head-fake. For example, a breakdown on a minute chart has a higher probability of continuing lower if the daily and weekly charts are in a downtrend.

A breakdown is the bearish counterpart of a breakout. In the chart below, prices have broken down below the neckline of a head and shoulders pattern.

Contrarian traders may look to trade failed breakdowns. To do this, a sell stop-limit order would need to be placed just below the support level. Once prices break down, the decline is likely to be intensified as stop-loss orders for long positions are triggered with additional selling pressure coming from breakdown traders. The extra volatility caused by the breakdown may result in a mediocre fill, due to slippage.

Alternatively, traders can wait for a retracement to enter the market. Entering the market on a retracement is likely to result in a better fill than trying to catch the breakdown early. Once in a short position, traders could use a trend following indicator, such as a moving average as a trailing stop. For example, when the price of the security closes above the moving average, the trade is exited. If traders believe the breakdown is the start of a new downtrend, they may want to use a longer-term moving average to try and catch the majority of the move.

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Medical Definition of break down Entry 3 of 3. Get Word of the Day daily email! Test Your Vocabulary. Can you spell these 10 commonly misspelled words? Love words? Need even more definitions? Just between us: it's complicated. Ask the Editors 'Everyday' vs. What Is 'Semantic Bleaching'? How 'literally' can mean "figuratively". Literally How to use a word that literally drives some pe Is Singular 'They' a Better Choice? Assuredly, this was an occasion when the sacrifice of a few minutes might avoid the grave risk of a breakdown after daybreak.

A coward by nature, he had been on the verge of a nervous breakdown before the trial, thinking of what might happen. He had been ailing for several weeks; as his son had remarked, his handwriting had been the first symptom of the breakdown.

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