Breakout and retest trading is one of the most reliable techniques in technical analysis. It allows traders to enter trades with confidence after confirming the breakout of a key support or resistance level. If executed correctly, it offers high probability entries, clear invalidation points, and strong risk-to-reward ratios.
For more reliable signals, the 4-hour or daily can offer better context. It depends on how often you trade and how much risk you’re willing to take. If the structure breaks cleanly, the retest is shallow, and confirmation appears, the setup has weight, so without those, it’s just movement, not a trade. When trading the Break and Retest strategy, stick to moderate leverage levels that you’re comfortable with. Be at home making a regular, consistent profit rather than trying to force a home run out of every trade.
Bearish Breakout & Retest
- Many traders rely on naked price action, while others layer in RSI readings, moving average slopes, or simple alerts that flag each breach and revisit.
- This approach reduces the risk of entering on a false breakout.
- You need price rejection, ideally with a clear confirmation candle or other confluence.
- Others lean toward higher timeframes for their cleaner structure and stronger confirmation signals.
- This trend is highlighted by the 50-period Exponential Moving Average (EMA) sloping downward, with the price generally staying below it.
- His approach in the market is heavily accompanied by technical analysis and of course, supported by fundamentals.
Patience, structure, and filtering fakeouts are key to maintaining long-term results. This pattern is common in intraday trading, especially on instruments with strong opening volatility like gold, indices, or forex majors. The key is waiting for structure to form, then letting the market show whether that breakout is real or just noise. Rather than entering on the breakout, a more conservative entry comes on the retest. Price returns to the broken trendline, which now aligns with the 50% Fibonacci retracement and the S1 pivot level, adding confluence. Break and retest setups can form on any timeframe, but the one you trade changes how clean the signal is.
✅ Why the Retest Confirms the Breakout
Then, wait for the price to retest the broken level before entering the trade, using risk management techniques like stop-loss orders. This retest is successful, confirming the breakout, and the $177 level now holds as support. Following this confirmation, the price resumes its upward momentum as bullish traders rally, marking a successful breakout and retest pattern. A retest occurs when the price returns to “test” a critical level that it has previously broken. To put it into context, a test happens when the price repeatedly hits a major support or resistance level, trying to break through but getting rejected each time.
What Is the Break and Retest Strategy?
This can lead to false signals, where the market briefly retests a level before reversing, trapping traders in losing positions. There’s so much you can do to make your break and restest strategy even better. For instance, you can incorpoate additional indicators to confirm your signals. A volume indicator can also help you confirm the strength of the breakout. Multi-timeframe analysis can also help you add confluence to your strategy. If the higher timeframe is bullish, for instance, and you get a bullish breakout and retest signal on the lower timeframe, your chances of success become better.
Now that you’re familiar with the bullish breakout and retest, learning the bearish variation is much easier, it’s essentially the same concept, just flipped on its head. If you can understand one, you can definitely grasp the other. Many breakouts fail and turn into “fakeouts.” A retest helps validate the strength of the breakout by showing that former resistance has turned into support (or vice versa). This shift in polarity confirms that market participants agree with the new price direction. Break and retest patterns often appear shortly after the market opens, especially during periods of strong directional bias. These moves tend to form around the high or low of the initial range, where early buyers or sellers meet resistance.
🎯 Pro Tips for Trading Breakout & Retest
Here are some essential techniques to keep your trading account safe while you master the Break and Retest strategy. It’s important to acknowledge that not all breakouts will result in a pullback and retest of the breakout zone. In this week’s instalment, we delve into the Break & Retest pattern—a strategic approach to navigating breakout trades. Traders begin by pinpointing significant support and resistance levels on their charts. Accurate identification is crucial, as these levels form the foundation of the strategy. This strategy aligns well with trending markets, where prices move consistently in one direction.
- Use simple tools like candlestick reversal signals, volume confirmation such as Volume Profile analysis, or nearby swing highs and lows.
- Break and retest is one of the most practical ways to trade breakouts.
- You can spot the pattern on gold, major forex pairs, equities, even crypto markets, whether you trade five-minute charts or daily candles.
- This level might offer a more favourable risk-reward ratio, but there’s a chance the price may not retrace deeply enough, potentially causing traders to miss the trade.
- One of the primary challenges is dealing with high volatility.
It’s a way to wait for confirmation, control risk, and avoid entering blindly into breakout momentum without structure. Many traders add confluence such as volume spikes, trendline tests, or indicator support like the VWAP indicator, to filter stronger setups. Price returns to the broken level, now acting as support or resistance. A clean retest shows hesitation or rejection at the level, not a full reversal. Traders prize the pattern because it blends market psychology with clean structure. It adapts to horizontal zones, trendlines, and opening ranges, and it shows up on everything from XAUUSD to tech stocks.
The break and retest strategy revolves around identifying key support and resistance levels on a price chart. When the price breaks through a support or resistance level, it signals a potential shift in market sentiment. For example, if a stock breaks above a resistance level, it suggests increasing buying interest. Traders then watch for the price to return to this newly broken level—known as a retest in trading. During the retest, the former resistance now acts as support, providing a potentially more attractive entry point for traders looking to join the trend.
Benefits of Trading the Breakout and Retest Strategy
Adding confluence, candlestick reversals, volume surges, a moving-average slope, can push the win rate even higher. A break-and-retest occurs when price punches through a well-watched support or resistance, pauses, then slips back to “test” that level before resuming the move. The second touch acts like a vote of confidence; if buyers or sellers defend it, momentum often accelerates in the breakout direction.
Recently, the price broke below a key support level on higher-than-average volume, signalling the time to apply the break and retest strategy. Once you’ve identified a legit breakout, don’t rush in right away. The next step is to wait for the price to reverse and retest the broken resistance level (which now becomes the new support). The idea here is to see if the market respects this new level, kind of like making sure the new table you’re about to lean on isn’t wobbly. If the price holds and respects this new support level, the coast is clear. After How to Invest in Index Funds breaking out, the price may continue upward for a short while, only to come back down and test this newly created support level (which was the previous resistance).
II. How to trade the break and retest
The price pushes beyond resistance, soaring up to around $192 before retracing back down to retest the newly established support at $177. This written/visual material is comprised of personal opinions and ideas and may not reflect those of the Company. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. Our platform may not offer all the products or services mentioned.
The idea isn’t to over-analyze, it’s to make sure you’re not trading blind. The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance.