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Understanding Horizontal Support Breakdown

In the world of technical analysis, breakouts/breakdowns are powerful signals that can help traders anticipate major market moves. One of the most significant patterns for identifying potential short-selling or downside opportunities is the Horizontal Support Breakdown.


A horizontal support breakdown occurs when the price of a stock breaks below a well-defined support level that has repeatedly prevented the price from falling further.

Support Level: A support level is where buying pressure historically halts price declines. When price repeatedly fails to break below a flat level, it forms horizontal support, seen as a straight line on the chart.

Breakdown: A breakdown happens when the price convincingly closes below this support level, signalling a potential shift in market sentiment from bullish or neutral to bearish.

How to Trade a Horizontal Support Breakdown

Entry Point

  • Enter the trade once the price closes below the horizontal support on strong volume.
  • A confirmed breakdown typically includes above-average volume and a decisive candle body (not just a wick below support).
  • A better approach can be to enter 50% of your quantity at breakdown and 50% after a confirmation candle.
Understanding the Retest of a Breakdown

A retest happens when the price, after breaking below support, pulls back to test that former support level—now acting as resistance.

This is a healthy market behaviour and adds credibility to the breakdown.


How to use the retest in your strategy:

  • Wait for the price to pull back to the breakdown level.
  • Look for bearish reversal patterns (e.g., shooting star, bearish engulfing) or resistance-holding price action near the breakdown zone.
  • Enter the trade if the level holds and price resumes downward movement.
  • This provides a better risk-reward entry and helps filter out false breakdowns.
Target Price: There are a few ways to estimate the target price:
  • Using chart:
    • Measure the height of the prior range (from support to resistance).
    • Subtract this height to the breakdown point. Target = Support Level - (Resistance - Support)
  • Fibonacci Extension or Pivot Points: These tools can also be used to estimate logical support levels or profit-taking zones above the breakout.
Stop-Loss Placement
  • Place a stop-loss just above the breakdown level or above the most recent swing high.
  • A tighter stop-loss can be placed at the high point of the breakdown candle.
Additional Tips
  • Combine support breakdown patterns with momentum indicators like RSI or MACD to confirm bearish strength.
  • Look for breakdowns occurring in weak market trends or sectors showing relative underperformance.
  • Always use a risk-reward ratio of at least 1:2 to make your trades worthwhile.
Charting Exercise: Open a daily chart and do your own technical analysis. Identify a stock showing a clear horizontal support level and then breakdown from the same. Mark these levels along with price target and stop-loss.

Homework: Check the following two stocks and select the one that fits the horizontal resistance breakout pattern.

1. Five-Star Business Finance Ltd. (FIVESTAR)

2. ITC Ltd. (ITC)

You may also add the stock to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.