Buy Break

Buy Break sounds like the old "You break it, you buy it" rule, but it actually refers to buying a share or asset at the breaking point.

Often, a stock will hover around a certain value, say, between $100 and $110. It might bounce between those for months, even years. That range is the zone of resistance. The share just can't quite make it over the hump. It might bump up to $110 periodically, but it just can't get the momentum to go past it, and ends up falling to $100 again.

The lower area of its average, $100 in this case, is the support level. That's the soft, cushy floor for the price to fall to, but not sustain any harm. Once the stock breaks over that $110 threshold though, it's breaking free to a new range. Once it gets to, for instance, $125, and it stays there a bit, investors then regard that $125 as the new support level, and anticipate it going up from there.

It's hard to spot a true breakout though. A false one is called a "fakeout." Think about the last time you heard of a big merger or new product. The announcement goes out Monday morning. By Monday afternoon, the stock is flying high. Tuesday morning it opens above the resistance level (in our example, above the $110). Wall Street goes nuts, thinking it's a breakout and buys, buys, buys. But...late Tuesday, the CEO of one of the companies merging is proven to be guilty of a super skeezy crime...and the stocks plummet, well below what was formerly the resistance range and the support level.

That's a fakeout. It started out looking like a great breakout, but then...bombed.