I am pretty sure everyone knows about what a breakout is in the world of stock market. But the important question is do you know how to spot a breakout? I follow these three parameters. Have a look –

Should have had taken support or resistance on one particular level multiple times

A stock can never breakout until and unless it does not have a major support or a resistance. It has to break barriers with volumes to get past its level that was withholding the movement. Have a look below. You may understand better.

Vedanta gave a breakout today.

Veda

The stock should be witnessing pressure (Buy or Sell) with every trading day that goes by

When traders say that the stock is in consolidation it could mean two things – either the stock will be trading sideways or the bulls & bears are fighting to strongly hold their ground strongly. Now if the stock is undergoing second option, it will definitely lead to a great pressure on stocks with little or no room to move further. Technically it is called Price Action Squeeze. Let’s have a look –

Yes Bank had given a breakout in January

Yes

Lastly, the entire movement of consolidation or Price Action Squeeze has to take place while it carries 20 Moving Average Exponential (EMA) along with it. The breakout which happens should take place keeping the 20 EMA as a major support. If you see the above two images – 20 EMA has been carried all along.