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Conversely, when a stock price fails to cross below the moving average it is seen as providing support for the stock price.

For example, when a stock cannot seem to cross above a moving average, the stock is said to be at a resistance point. A moving average provides a way for traders to filter out random price fluctuations that are not consistent with a current trend.Ī moving average can also indicate where a stock has support or resistance. The moving average calculates price movement over a given period. The role of moving averages in determining support and resistanceĪ moving average (MA) is an indicator used by investors, to get a clearer picture of a trend in price movement. The stronger the confirmation of support and resistance, the higher the likelihood that a breakout will be meaningful. However, to identify the best breakout stocks traders are looking at the frequency at which the price touches its support and resistance levels. One way to tell that a stock is range-bound is that there will be a price that the stock does not drop below (I.e. a support level), and a price that the stock does not rise above (I.e. a resistance level). To identify potential breakout stocks it’s important to understand the concepts of support and resistance. This is because after an asset has been in a defined range, a move in either direction usually comes with significant momentum, which provides the opportunity for outsized gains. This is a form of range trading in which traders are looking for a stock or asset class (e.g. commodity, cryptocurrency, etc.) that suddenly breaks outside of a well-defined range. Trading breakout stocks is a popular strategy among active investors.