4 Things to Check Before Taking a Breakout Trade

A stock crossing its resistance level doesn't always mean a genuine breakout. Before considering an entry, check these four things on the chart. 1. Resistance should be tested multiple times When a stock approaches the same resistance level repeatedly, it shows that buyers are trying to push the price higher. A breakout above this zone becomes more meaningful when the level has been tested several times. 2. Volume should increase during the breakout A price breakout with strong volume shows better participation from buyers. If volume remains weak, the move may not have enough strength to continue. 3. Candle should close near its high Look for a strong candle that closes near the day's high, rather than one that breaks resistance and then gives up most of its gains. 4. Check the sector trend This is equally important. If the stock is breaking out while its sector is also moving higher, the setup gets better support. A stock moving against a weak sector may struggle to sustain its breakout. Don't judge a breakout by price alone. Check volume, candle strength and sector performance before planning an entry. Also define your stop-loss before taking the trade.