Have you ever seen a stock move sideways in a narrow range, only to break out suddenly with strong momentum? In this newsletter, we will look at how to spot these breakout moves in advance by identifying price buildups that occur just before the breakout.

The logic of Buildup

In a consolidation phase, price moves within a defined range. The high of the range acts as resistance, and the low of the range acts as support. When the price reaches the high of the range, it should face selling pressure and fall within the next few candles. Similarly, when the price approaches the low of the range, it should face buying pressure and bounce.

Before a breakout or breakdown occurs, the price often forms a buildup. A buildup is a cluster of candles that form close to each other near a key level, either the high or the low of the range, with limited variation in their price range.

For example, if the price is forming a rectangle pattern and preparing for a breakout, you may observe a buildup near the high of the range. This indicates that instead of facing immediate selling pressure at the resistance, buying interest is present at those levels. As a result, candles begin to form side by side near the high, suggesting strength and increasing the probability of a breakout. When the price finally gives a breakout or breakdown from the consolidation, the price moves with momentum.

Where to spot Buildups?

Buildups are not limited to consolidations. They also appear near key levels such as the All Time High, 52-week High, All Time Low, or 52-week Low. Buildups can also form near levels where the price has repeatedly faced resistance or found support multiple times. It is not necessary that the build forms below the resistance or above the support level. Sometimes, the price could breach the resistance or support and then form a buildup near those levels.

Observe the chart below of ABCAPITAL on Daily timeframe. The price has given an ATH (All Time High) breakout on 2nd April 2024. After the breakout, the price formed a buildup near the ATH level. Observe the price movement after the breakout.

A similar formation can be observe on the Weekly chart of BLUESTARCO. The price was near the ATH level and formed a buildup near the ATH level.

The chart below of CHALET on Daily TF shows a perfect example of buildup. The price was within a consolidation with the high of the range and low of the range acting as resistance and support multiple times respectively. When the price had to give a breakout, it formed a buildup near the high of the range and gave a breakout.

This concept is extensively discussed in Session number 7 of The Art of Analysis (Weekly Session) under TNT One membership. If you are a member of TNT One, do check out this session for more valuable insights like how to scan buildups and how to trade them. If you do not have membership, become a TNT One member today and get access to over 200+ hours of technical analysis, trading, and financial market resource.