The Break and Retest Strategy is one of trading’s most reliable approaches, combining technical analysis with psychological market dynamics. Traders use this method to enter price movements after significant support or resistance levels are broken, waiting for the market to return and confirm the original breakout.
While many focus just on the initial break, more successful traders understand that the real opportunity often lies in the subsequent retest phase.
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- Identify strong support or resistance levels and wait for a clear price breakout with above-average trading volume.
- Look for price to return and retest the broken level, confirming the level’s role reversal from support to resistance.
- Enter trades only when price action signals like pin bars or engulfing candles confirm rejection at the retest level.
- Set stop-loss 10-15 pips beyond the retest level and target a minimum risk-reward ratio of 1:2.
- Monitor volume patterns during setup – high volume on breakout and lower volume on retest indicates a healthy trade. Use FX Futures volume
Price Action Entry Method
Break and Retest Strategy uses specific price action signals at key market levels to identify high-probability trading opportunities. This strategy capitalizes on the market’s tendency to retest previously broken support or resistance levels, allowing traders to enter positions in the direction of the breakout with clear risk parameters.
The approach combines technical analysis with price action confirmation to maximize trading success while minimizing potential losses.
Understanding market sentiment analysis during consolidation phases helps traders anticipate potential breakouts and retests with greater accuracy.
| Indicator/Pattern | Purpose | Settings/Conditions |
|---|---|---|
| Futures Volume Indicator | Confirms strength of breakout and retest | Look for above-average volume during initial breakout and declining volume during retest |
| Price Action Patterns | Identifies potential reversal points | Pin bars, engulfing candles, or rejection wicks at retest level |
| Flag Patterns | Shows consolidation after breakout | Parallel channel formation against breakout direction |
Trading Strategy Details
The break and retest strategy uses minimal indicators to maintain focus on pure price action and market structure. This approach reduces analysis complexity and allows traders to react quickly to genuine market opportunities while avoiding indicator lag or conflicting signals.
- Identify key support/resistance level
- Wait for initial breakout with strong volume (use momentum)
- Monitor price return to broken level
- Look for reversal candlestick patterns at retest
- Enter trade when price action confirms rejection
- Place entry order above/below reversal candle
- Set initial stop-loss beyond retest level
- Target minimum 1:2 risk-reward ratio
Risk Management
Position size should not exceed 1-2% of total trading capital per trade. Stop-loss placement requires consideration of market volatility, typically 10-15 pips beyond the retest level to avoid premature stop outs. During high-volatility periods, increase stop-loss distance proportionally while reducing position size to maintain consistent risk exposure.
In trending markets, traders can be more aggressive with position sizing while maintaining strict stop-loss discipline. During choppy or ranging conditions, reduce position size by 50% and consider using wider stops to accommodate increased price fluctuations. Always adjust profit targets based on nearest significant support/resistance levels and current market conditions.
Momentum-Based Entry Signals
Trading volume can be an important confirmation tool for price action signals during break and retest setups, with higher volume indicating stronger market conviction in the breakout direction. The secret is you need to use the FX Futures market for real exchange volume.
A surge in trading activity during the initial breakout, followed by decreased volume during the retest phase, typically suggests a healthy market structure and increased probability of success.
When volume patterns align with price movements, traders can more confidently execute their entries, as the combination of price action and volume provides a more complete picture of market dynamics.
Analyzing multiple timeframe analysis helps traders identify optimal entry points by revealing hidden signals that may be obscured on a single timeframe chart.
Volume Confirms Price Action
Market validation through volume represents one of the most powerful confirmatory tools in the break and retest strategy. When increased trading volume accompanies a breakout phase, it indicates genuine market interest and strengthens the likelihood of sustained price movement.
Traders can effectively distinguish between valid and false breakouts by monitoring volume dynamics alongside price action.
During the retest level, volume confirmation becomes particularly important as it validates the strength of support or resistance levels. A spike in volume during this phase, especially when aligned with specific candlestick patterns, provides reliable entry signals for traders.
Conversely, weak volume at retest points may signal potential false breakouts, prompting traders to exercise caution. By carefully analyzing these volume patterns, traders can make more informed decisions and reduce their exposure to failed trades.
Use Candlestick Analysis Instead of Volume
Not everyone has access to FX Futures so they need a price action method to show lower intent on the pullback for the retest. Look for a pullback that is hesitant meaning there is not strong momentum against the breakout.
During the breakout? Looking for wider body candlesticks when compared to the immediate past before the breakout can also be used.
Strategy Benefits Versus Risks
Every successful trading strategy comes with its own set of advantages and disadvantages, and the break and retest approach is no different. The strategy offers increased confidence through confirmation at support and resistance levels while providing clear entry and exit points for trading decisions.
- Trading confidence increases as lazy price retracements confirm genuine breakouts, reducing the risk of false signals.
- Risk management becomes more precise with well-defined stop-loss placement near retest levels.
- Strategy aligns with market trends and mechanics, improving probability of successful trades.
- Versatility across different financial instruments boosts trading opportunities.
However, traders must remain vigilant about false breakouts, particularly in volatile or sideways market conditions.
The key to maximizing the risk-reward ratio lies in waiting for proper confirmation before executing trades, ensuring that each bullish breakout meets the strategy’s criteria.
Implementing Your Trading Knowledge
Success in using the break and retest strategy requires a methodical approach to chart analysis and trade execution, combining technical understanding with disciplined decision-making.
Traders often begin by identifying significant support and resistance levels, carefully watching for breakout and retest opportunities that align with their analysis. When market movements indicate a potential setup, they look for confirmation signals such as reversal patterns or increased volume/momentum at key support or resistance zones.
A well-planned entry point along with with properly positioned stop-loss levels, forms the foundation of effective risk management. While no strategy guarantees success, careful attention to these technical elements helps traders maintain consistency in their approach, allowing them to capitalize on high-probability trading opportunities while protecting their capital.
Your Questions Answered
Is Break and Retest a Good Strategy?
Break and retest is a highly effective strategy when properly executed, relying on breakout confirmation and clear support levels to validate trade decisions.
The approach capitalizes on market psychology as traders react to price action around resistance zones, creating predictable trend reversals.
With strong risk management and precise entry signals, traders can achieve consistent results.
However, success depends on accurate chart pattern recognition and disciplined trade execution.
What Is the Win Rate of Break and Retest Strategy?
The win rate of break and retest strategy typically ranges from 50% to 70%, varying with market conditions and trader knowledge.
Success factors include proper risk management, disciplined trading psychology, and appropriate timeframe selection.
Back testing results show higher success rates when traders combine indicator confirmation with careful asset volatility analysis.
While individual trader testimonials report varying outcomes, consistent strategy execution and market alignment remain important determinants of performance.
What Is the Most Profitable Trading Strategy?
The most profitable trading strategy combines fundamental analysis with technical indicators while maintaining strict risk management principles. Successful traders often blend trend following with swing trading, utilizing position sizing and understanding market psychology.
Chart patterns, algorithmic trading, and diversification strategies play important supporting roles, but no single approach guarantees success. Profitability comes from consistently applying a well-tested strategy that aligns with personal trading style and risk tolerance.