Best Break and Retest Strategy: Trade Breakouts Wisely
The best break and retest strategy is an enhanced form of breakout trading. Discover the step-by-step process of using the method with pros and cons.
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Today, we’ll break down the best break and retest strategy, explain what break and retest actually means, and walk you through a step-by-step guide for making more confirmed trades.
Breakout trading is one of the most widely followed trading strategies in the financial markets. But let’s face it—false breakouts are killing trader confidence. Many technical analysts struggle to decide when to trade a breakout and when to stay out. If you’re dealing with the same frustration, this post is for you.
What is the Best Break and Retest Strategy?
The best break and retest strategy is an enhanced form of the traditional breakout trading style. Under this break and retest strategy, traders wait for a price retest to place a trade whenever the price breaks the key support or resistance levels. This approach is highly favored among elevated traders who seek more precise entries and confirmation-based setups.
In breakout trading, traders tend to open a long position when the price breaks the resistance, and when the price breaks the support level, they typically enter a short position. This concept, known as break trading, often relies on identifying patterns such as trendline breakout or falling wedge breakout and retest, which signal potential momentum shifts.
Why Not Every Breakout Is Trade-Worthy
While the break and retest method is quite popular, it’s crucial to understand that not every breakout is trade-worthy. Trading vague or weak breakouts—without confirmation—can lead to significant losses. That’s why the best traders avoid impulsive entries and prefer to wait for a break and retest setup where the price pulls back and retests the broken level.
Understanding Retest Meaning
This is where the retest meaning or the ability to define retest comes into play it simply refers to the price coming back to test a broken level for validation. Waiting for this confirmation is the key in day trading, helping traders verify that the breakout is genuine before committing capital.
The best break and retest stratagy as some might spell it offers a reliable method to trade breakouts more effectively. It ensures traders don’t blindly jump into trades but wait for the right moment backed by technical validation.
Break and Retest Strategy Example
Confused? Here is an example for you to gain a clear understanding. An XAU/USD trader was watching the chart when the price was trending at $3080 within a consolidated range.
The price levels of $3000 and $3100 are the support and resistance. Suppose the price starts rising and breaks the level of $3100.
At this stage, many traders will open a long position. However, a break and retest traders will wait for price retest.
Suppose the price rises to $3120 and drops again to $3100. Now, the initial support will act as a resistance. The breakout is confirmed if the price again starts rising after touching the $3100 level. If so, then the trader can consider opening a long position.
How to use The Best Break and Retest Strategy
Still confused? Here is a step-by-step guide to using the break and retest strategy. Just follow these steps and trade breakouts effectively:
Select The Trading Instrument:
Begin with identifying the financial instrument you want to trade in. You can consider currency pairs, major stocks, indices, commodities, or other assets. Once you have selected the asset, open the chart to consider your trading time frame.
Analyze the charts:
The break and retest strategy applies when prices move sideways without any clear, bearish or bullish trend. Watch whether prices are moving in a consolidated range or not.
Identify the key price levels:
You need to identify potential support and resistance on the chart. For that purpose, you can either use technical analysis indicators or look for breakout patterns. Wedges, triangles and channels are some popular breakout trading candle patterns.
Wait for Breakout:
Wait till the price levels break the key support or resistance levels. A breakout can occur in both directions. A bullish breakout is when the price breaks the resistance, and a bearish breakout is when the price breaks the support level.
Wait for Confirmation and Price Retest:
Once the breakout occurs, wait till the price again hits the key levels and reverses back for price retest. Also, during the retest, you can use other candlestick patterns and technical analysis indicators to confirm breakout.
Place the Trade:
You can open a trade position once the price retraced in the direction of the breakout. Like in the image below, the price of the asset breaks below the support level. In this case, you need to wait till the price again retraces on the support level that now acts as resistance. If the price starts declining again after touching the key level, you can consider opening a short position.
Pros of Break and Retest Strategy
Minimal false breakouts:
With breakout trading, the chances of false breakouts are higher. However, with the break and retest strategy, you are waiting for a retest for confirmation, so the chances of false breakouts are minimal.
Exact Entry and Exit Points:
The strategy provides clear trade entry and exit points. You can plan trade entries and exit based on the support and resistance levels. Also, you can even set the stop loss level considering the retest levels.
Versatility:
The best break and retest strategy is widely used and applied. You can use the style for both long-term and short-term strategies. Also, you can trade a wide range of instruments, including forex, stocks, ETFs, indices, commodities and others.
Cons of Break and Retest Strategy
Required Confirmation:
Many traders think the strategy does not require confirmations as price retest confirm the breakouts. However, it’s true that the retest has confirmed breakout, but there is a need for further confirmation. For that purpose, traders can use indicators such as RSI, Bollinger bands, moving averages, etc.
Delayed Execution:
Waiting for price retest may delay your trade execution, and you can even lose potential opportunities. As there is no time boundary, a price retest can happen soon or may take a significant amount of time.
Ineffective during a Volatile Market:
The strategy does not work well during unfavorable market swings, sudden changes or high volatility. You can even lose a significant amount when trading breakouts during such events.
Bottom Line
Breakout trading is already a popular strategy. The best break and retest is the improved form of breakout trading. So, obviously, it is effective and accurate. It assists in making informed decisions and increases the probability of profitability.
However, when using any technical analysis method, confirmation is a must. Thus, to get the desired results, seek proper confirmation. Also, if you are new, practice the strategy before making real trades.
At Beirman Capital, we allow our clients to try and test different technical analysis concepts. Open a demo account with us and learn trading in real market conditions.
FAQ
- Is the opening range breakout 30 seconds?
Breakout can be used in multiple time frames. In the 30-second opening range breakout strategy, the highs and lows of 30 seconds are used to make further trade decisions.
- What is a breakout in trading?
Breakout trading is opening a long position when the price breaks the resistance levels and a short position when the price breaks the support level.
- Is the Best break and retest strategy ideal for beginners?
Yes, the best break and retest strategy is easy to use, simple to execute, and suitable for market beginners.
- What is the win rate of break and retest?
The win rate of break and retest highly depends on the trader’s approach. On average, the strategy has a win rate somewhere between 50 to 90%.
- Is break and retest the best trading strategy?
There is nothing called best in trading. However, the break and retest strategy is undoubtedly a good strategy for traders.
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