Barchart defines itself as the best provider of market data solutions with technical analysis for individuals and businesses. It is characterized by a lot of updated information on financial news and market actions taken by enterprises and businesses. It will provide readers with enough information to determine whenever a business breaks down which can turn into a business opportunity for stock traders.
What is a breakdown?
A breakdown is a popular term in the financial and stock marketing landscape. But what is the definition of a breakdown? Well, for the purpose of answering a question like this, we have to imagine there is a drop in price caused by a security closure below the support level of a company with increased volume. It’s a bearish sign, which becomes a tool for technical and value investors’ analysis process.
The indicators of a breakdown are two: Support level (also known as the bottom line) and the increased volume of stocks. In order to understand how to identify a breakdown in the stocks of a company, it’s a critical need to understand these two terms.
The main reason for businesses to issue stocks is for them to raise cash and capital. Once the stocks are issued they continue to be traded or exchanged between traders and other companies.
Within the attractive features owning a stock offers it’s possible to point out the income the trader would receive (dividends) and, depending on the company politics, stock owners can even have the right to vote when an important decision is to be made.
Nevertheless, through technical analysis and the Barchart trader, most stock traders and trade spotters focus only on the gain they can get from the buying and selling operations and this is how the support level is defined.
The support level is nothing more than the price level of a stock which has never (or hardly ever) fallen below the support level according to the historical statistic registers. When there’s a breakdown in stock, the price of that stock closes below the support level, giving the chance for traders to take advantage and buy the stock at a cheaper price than ever.
The volume is easily defined as the number of transaction shares go through in a day. Each time shares change hands it affects the volume the stock has directly. It’s normal for big companies to have millions of shares issued as well as a numerous amount of exchanges during a day.
However, how could the volume affect traders’ decisions and how does it relate to a breakdown? Well, if there is a considerable number of exchanges per day (volume), then the stocks become easier to buy or sell on any particular day and over a given time period. This is the main reason why investors prefer stocks with a lot of daily volume—it allows them to sell their shares whenever they want.
It’s difficult—not to say impossible—for a stock to have little to no volume on a day. Companies have a number of firms which give some volume of transactions to a stock if no one is buying shares; these people are known as market makers. However, the effect of market makers isn’t going to stop a stock from increasing its volume.
Why is Barchart a great platform to identify breakdowns?
As it was mentioned at the beginning of this article, the Barchart opinion provides traders with the information they need to identify a breakdown. Which is usually the volume of trade transactions the stocks have in a day and the support level of a particular stock. It will also provide traders with extra information about any financial news that may affect the market directly or indirectly.
Evaluation is a very important part of the process when deciding to buy or not buy a stock. A lack of information can leave traders to the precarious position of buying shares at a higher price and being pushed to sell at a lower price than they bought in order to avoid bigger loss. It can also lead traders to take advantage of a breakdown and buy shares at a way lower price than it’ll be sold in the future.
How to identify a stock breakdown in Barchart
Once the term’s volume and support level are clear to the trader, it’s easier to identify a breakdown and jump on it and set a timeline for when to sell and profit. In order to identify a breakdown, a trader must:
- Identify their primary trading time frame
- Point out significant price levels
- Wait for the stocks to close at a price below the support level with increased volume
Once the stocks close below the support level with increased volume then the sign of a breakdown is evident and it’s time to take action. Nevertheless, traders can confirm the existence of a breakdown when the stock closes below the breakout candlestick.
What is candlestick charting?
A candlestick chart remains as the last resolution a trader has to confirm and support the idea of a stock breakdown, which can represent the perfect opportunity to profit from a buying-selling transaction.
On a candlestick chart, the investor can appreciate whether the closing price was higher or lower than the opening price. One of the most popular techniques regarding candlestick charting is to identify the beginning of a breakdown whenever a stock closes at a lower price than their opening price. The second day’s candlestick chart maintains or lowers compared to the first one to finally close below the price of the second day’s chart medium level. This can be the perfect time to buy a stock and ensure making the most out of the breakdown.
A stock’s breakdown is a golden opportunity amongst short sellers. A breakdown enables a short seller to get into the process and make quick gains because stocks fall way faster than they rise.
Even though a confirmed breakdown in a stock is regarded as the best opportunity for a trader to buy shares, it’s not a 100% effective method. In a market as volatile as the stock market, it’s really hard to assure one method is completely reliable. There’s always the possibility of the company not recovering from a breakdown.