Once again, the resistance stands strong, and the price is rejected, moving downwards once more. It also offers a safer entry than jumping in at the breakout point, where price might reverse sharply. Even valid breakouts often return to the breakout zone before continuing. Wait for price to return, watch how it reacts, and only step in when there’s something solid to work with.
However, it’s important to remember that no trading strategy is foolproof. The Break and Retest Trading Strategy has its fair share of fans, and for good reason. Before you dive in, it’s essential to weigh the pros and cons to see if this approach fits your trading style. Statistics or past performance is not a guarantee of the future performance of the particular product you are considering. Open a free demo account today and experience institutional-grade spreads, lightning-fast execution, and all the tools you need to grow as a trader.
There’s no fixed timing for how long a retest takes to form. On H1 or H4, it might take longer but give a cleaner setup. Before we wrap things up, let’s address some of the most common questions traders have about the Break and Retest strategy.
One of the biggest advantages of the Break and Retest strategy is that it can be highly profitable. When executed correctly, this strategy allows traders to enter the market at an optimal What Is a Stock Index point—right after a breakout has been confirmed by a retest. This increases the probability of the trade moving in your favor, as you’re essentially following the market’s lead rather than trying to predict its next move.
Step 5: Enter the Trade
These FAQs will help clarify some key points and ensure you’re fully equipped to implement this strategy effectively. It’s an old trading cliché, but when it comes to trading the Break & Retest pattern, the trend really is your friend. This is because the Break & Retest pattern fundamentally functions as a pullback pattern, and pullbacks tend to exhibit greater success within well-established trends. Practice it across timeframes, stay consistent with your plan, and let the setup come to you, not the other way around. Break and retest setups often follow the same logic, but how they look on the chart can vary depending on the context. If price slides straight back inside the old range and settles there, the breakout was just noise and is best ignored.
Similarly, the MACD crossing above its signal line or the MACD histogram rising above 0 can confirm the uptrend’s strength, aiding in more precise entry points. With confirmation in place, traders often enter the market, aiming to ride the new trend. They might set stop-loss orders slightly below the new support (in the case of a breakout to the upside) or the new resistance (in case of a breakout to the downside).
- Moving averages, RSI, volume spikes, and price action tools like candlestick patterns are useful.
- Following this confirmation, the price resumes its upward momentum as bullish traders rally, marking a successful breakout and retest pattern.
- This way, you can ride the trade without the fear of losing any of your initial capital.
- He has a background in trading proprietary firms and has been teaching students how to navigate themselves in the markets from basic to advance concepts.
How To Trade News
With countless strategies to choose from, it’s easy to get overwhelmed. However, one approach that stands out for its simplicity and effectiveness is the Break and Retest Trading Strategy. To the extent permitted by law, in no event shall Capital.com (or any affiliate or employee) have any liability for any loss arising from the use of the information provided. Any person acting on the information does so entirely at their own risk.
The Break and Retest Strategy is a technical analysis approach that capitalizes on a breakout in the market. It’s closely related to the breakout trading strategy, which involves identifying key levels of support or resistance and trading breakouts. However, the Break and Retest strategy takes it a step further by waiting for the market to come back and “retest” the broken level before making your move. Consider this EURUSD 15-minute chart, which displays a clear bearish trend. This trend is highlighted by the 50-period Exponential Moving Average (EMA) sloping downward, with the price generally staying below it.
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- This is because the Break & Retest pattern fundamentally functions as a pullback pattern, and pullbacks tend to exhibit greater success within well-established trends.
- A breakout observed on a 4-hour chart gains additional confirmation when a strong trend is also visible on a daily chart.
- A breakout occurs when the price moves beyond a key support or resistance level, signaling the potential start of a new trend.
Breakout & Retest with Moving Averages
During the retest, traders look for confirmation signals to ensure the breakout is genuine. These signals can include specific candlestick patterns, such as pin bars or engulfing candles, and continued high trading volume. Confirmation suggests that the new support or resistance level will hold, increasing the likelihood of a sustained trend.
Advantages of the Break and Retest Strategy
A breakout occurs when the price moves beyond a key support or resistance level, signaling the potential start of a new trend. A valid retest happens when price returns to a broken support or resistance and shows clear hesitation, like a wick rejection, engulfing candle, or bounce with volume. This approach reduces the risk of entering on a false breakout. If the retest holds and the structure confirms, it gives a clear entry backed by logic and price action, not guesswork. The setup is simple in theory, but execution requires attention to detail.
Imagine the price is rising steadily until it meets a resistance ceiling. The resistance level pushes back against the price, causing several rejections or “tests.” But once the price finally breaks through this resistance, that same level is no longer resistance. To help you time high-probability entries after a breakout using retests—removing FOMO, improving entry price, and increasing your edge as a price action trader. Yes, when used with proper risk management and confluence, the break and retest strategy can be consistently profitable.
That retest isn’t random, it reflects traders taking profits or waiting to rejoin at a better level. If the level holds and momentum slows, it suggests the breakout was real. HowToTrade.com takes no responsibility for loss incurred as a result of the content provided inside our Trading Academy. By signing up as a member you acknowledge that we are not providing financial advice and that you are making the decision on the trades you place in the markets. We have no knowledge of the level of money you are trading with or the level of risk you are taking with each trade.
In essence, the Break & Retest pattern involves entering the market during the initial pullback following a breakout. There’s nothing quite like a real example of a bullish breakout and retest to reinforce those learnings. Theory is great, but seeing it play out on a chart is where the pieces really come together. Deep retests often trap traders expecting a failed breakout, then resume in the original direction.
A retest is tied to the breakout zone—it’s your confirmation that structure has shifted. If price barely touches the area without hesitation or forms a weak reaction, it could be a trap, not an entry. Even without indicators, this setup is clear and repeatable. Once the range breaks, the retest gives you a second chance to enter with defined risk. You can add tools like RSI or moving averages if they help, but structure comes first.