What is a Buy Break?

A buy break is an investment strategy based on purchasing stocks when they exceed their resistance point, their predicted top value. According to the logic behind this strategy, if the value of a stock pushes through the resistance point, it should continue to rise as investor activity will increase, and buying in at a lower price will offer a possibility of high profits. This strategy requires the use of statistical analysis and other tools to track stock prices and make predictions about them, and it is used by advanced investors.

Numerous tools are used in analysis for a buy break strategy, including historical performance of a stock, reporting on market trends, analysis of top performing stocks, and other materials. Investors involved in strategy development typically subscribe to a number of financial publications, in addition to following the news closely and tracking market performance directly with stock tickers. This requires the ability to focus on multiple things at once.

The resistance point for a stock is determined by tracking the stock's value over time and making an estimate about the upper price ceiling. As the stock starts to approach that ceiling, investors using a buy break strategy will start to pay close attention. The stock may hover around that price for an extended period of time and if it breaks through, people want to be ready to act quickly. Once a stock breaks through the resistance, the price can increase rapidly.

The buy break strategy is not without risks. People may not estimate the resistance level properly and could end up buying in on a stock that isn't on the rise, and it is also possible to hold a stock too long, in which case the value will fall before the investor gets a chance to sell it. Investment is a risky activity and people engaged in investments must weigh those risks carefully when they make investment decisions. Using diverse investment strategies can help with this, allowing people to take losses on some stocks but balance them out with earnings on others.

Investment advisors may use a buy break strategy with certain clients, depending on the needs expressed by the clients and the movements of the market. Development of a custom investment strategy based on years of experience and practice is one benefit to working with an investment advisor. People interested in learning more about investing and taking a more active role should seek out an advisor who encourages more participation and can provide investment education or referrals to educational resources.