A breakout and retest strategy waits for price to break a key level, come back to it and hold, and only then enters in the direction of the break. Instead of buying the moment a level gives way, you let the market show that old resistance is now acting as support, or old support as resistance.
Quick answer: what is a breakout and retest strategy?
It is an entry method with three stages: 1) price closes clearly beyond a significant level, 2) it pulls back to that level, now treated as a zone, and 3) a candle rejects the zone in the breakout direction. You enter on that confirmation, place the stop beyond the retest low or high, and skip the trade if no retest comes.
How a retest differs from trading the break
Our guide to avoiding false breakouts with five simple filters covers why so many breaks fail and how to filter them. The retest appears there as one filter among several. This article is the retest itself, used as a complete entry method from level to exit.
The idea behind it is role reversal. Traders who sold at resistance and were proved wrong often want out near their entry, and traders who missed the break wait for a better price. When price returns to the level, that combined interest can turn old resistance into new support.
It does not always work that way. The retest is simply a more patient entry that gives you a defined place to be wrong.
The three stages of a breakout and retest
We run the same sequence on every chart. If any stage is missing, there is no trade.
- Pick a level that matters. It should be a clear swing high or low, or a range edge that price has reacted to more than once. Our guide on how to identify market structure with highs, lows and breaks explains which swings count.
- Wait for a decisive break. We want a candle body to close beyond the level on the timeframe we trade, not just a wick poking through.
- Let price come back. The pullback should be slower and smaller than the breakout leg. A sharp, heavy return is a warning, not an opportunity.
- Watch for the hold. A rejection candle, such as a long lower wick at old resistance or a bullish close back above the zone, is our trigger.
Treat the level as a zone
Retests rarely touch a line to the pip. Price often overshoots a little or turns just short of it, so we mark a zone around the level, using the wicks and bodies of the candles that formed it. Our comparison of supply and demand versus support and resistance shows why zones behave better than single lines.
Entry options: limit order or confirmation candle
There are two common ways to enter the retest. Neither is right for everyone, so pick one and apply it the same way every time.
| Factor | Limit order in the zone | Confirmation candle close |
|---|---|---|
| Entry price | Better, inside the zone | Worse, after the bounce |
| Stop distance | Tighter | Wider |
| Missed trades | Fewer | More |
| Failed retests caught | Often filled, then stopped | Often filtered out |
| Screen time needed | Low, order rests | Higher, or use alerts |
We lean towards the confirmation close for beginners. It uses the same thinking as our filters and triggers trade entry checklist: the break and the trend are the filters, and the rejection candle is the trigger.
Stops, targets and when the retest has failed
Where the stop goes
For a long trade the stop sits below the low of the retest, plus a small buffer for spread. If price closes back below the whole zone, the idea that resistance has become support is wrong. Our guide on where to place a stop loss with price action goes into buffers in more detail.
Where to take profit
The first target is usually the next obvious swing high or the next opposing zone. If that target is not at least twice the stop distance away, we treat the trade as not worth taking, however clean the retest looks.
What a failed retest looks like
A failed retest is a candle that closes back through the zone on your entry timeframe. At that point the breakout itself is in doubt, so we exit rather than hope for a “deeper retest”. Volume can help you judge the pullback, and our guide on using volume to confirm a trend shows what quiet and heavy pullbacks look like.
Worked example: entering a retest on an index
Example: on a hypothetical £5,000 account we risk 1% per trade, which is £50. A hypothetical index has stalled at 7,500 three times, then closes a four-hour candle at 7,540, clearly above that resistance.
Price drifts back over the next day and dips to 7,495, inside the zone we marked between 7,490 and 7,510. A candle then closes at 7,520 with a long lower wick, which is our trigger.
- Entry: 7,520, on the confirmation close.
- Stop: 7,485, just under the retest low, so 35 points of risk.
- Size: £50 ÷ 35 points = about £1.43 per point on a spread bet.
- Target: the previous swing high at 7,600, which is 80 points, a little over twice the risk.
Had we bought the breakout close at 7,540 with a stop under the zone at 7,485, the risk would have been 55 points and the size about £0.91 per point. Our guide on how to calculate position size for spread bets and CFDs shows the formula.
The tighter stop is not a free lunch. Spread bets and CFDs are leveraged, and a gap through the stop can cost more than the planned £50. The EU regulator ESMA introduced leverage limits, margin close-out rules and negative balance protection for retail CFD clients in 2018 because of the losses involved.
Common mistakes with the breakout and retest strategy
- Chasing when no retest comes. Missing a strong move is part of the method. Entering late, far from the level, breaks the whole logic of the stop.
- Using minor levels. A retest of a small intraday wiggle means very little. The level must have mattered before the break.
- Calling every pullback a retest. If price falls deep through the zone, it is a failed breakout, not a retest.
- Ignoring the bigger picture. A retest against the daily trend often fails. A top-down chart analysis routine keeps you on the right side.
- Moving the stop to give it room. Once the zone is lost, the trade idea is gone.
In our experience, the hardest part is the waiting, not the analysis. Writing the level, the zone and the trigger down before the break happens makes it much easier to stay patient.
Frequently asked questions
What if price never retests the level?
Then there is no trade under this method. Strong breakouts often run without coming back, and accepting those missed moves is the price you pay for a better-defined entry and stop.
Does the retest have to touch the level exactly?
No. Price often overshoots or turns slightly short, which is why we mark a zone rather than a single line. What matters is that price holds the zone and closes back in the breakout direction.
Which timeframe works best for break and retest?
The method works the same way on any timeframe, but higher timeframes produce fewer and cleaner levels. We find the level on the four-hour or daily chart and time the entry on the timeframe below.
Is a retest entry safer than entering on the breakout?
It is not safer, just different. You usually get a tighter stop and filter out some false breaks, but you also miss trades, and a retest can still fail.
Next steps
Before you test retest entries, make sure you can pick out the levels that matter with our guide to high-probability price action setups, and revisit the false-breakout filters in the breakouts guide above.
Price action with technical analysis and a filters and trigger process are both covered in our price action trading course, and the basics section is free to start.
This article is for education only and is not financial advice. Trading leveraged products such as CFDs and spread bets carries a high risk of losing money.
