Breakout and Retest: Best Price Action Trading Strategies
Hello everyone. In this post, I am going to share with you one important trading strategy. The strategy name is the breakout and retest trading strategy. It is one of the best price action trading strategies. You can use this strategy for both swing trading and day trading. Let’s dive into the topic.
Now, let’s talk about the breakout and retest strategy. It’s all about finding important levels on a chart and using them to your advantage.
Table of Contents
How Does the Breakout and Retest Price Action Trading Strategies Work?
See the below image. Let’s assume this is the stock price movement. It moves in a sideways range. Connect all the lows, and this is the support level. Support levels act like a safety net, keeping prices from falling lower.
Connect all the highs, and this is the resistance level. Resistance levels act like a ceiling, stopping prices from going higher.
![breakout and retest price action trading strategies](https://senthilstocktrader.com/wp-content/uploads/2023/10/support-resistance-level-1024x576.jpg)
When a stock breaks out of these important levels, it often means the stock is going to change its direction.
Now, here’s the exciting part – the breakout! When the stock breaks these important levels, you need to pay attention.
And breakout alone isn’t always enough. This is where the retest comes in. The retest is when the price comes back to touch the broken level. It’s like a double-check, making sure the breakout is real and not just a trick.
Let’s see some examples on a real chart.
Also Read: Breakout Trading Explained
Example 1
Look at the below chart, It has one important resistance level, and a strong green candle broke that resistance level and the stock price started to move in an upward direction.
After a few days, the stock price fell down and took support at that breakout level. Now that the resistance level acts as the support level, after taking a retest on the support level, the stock price started to move in the upward direction.
Again it fell down and took support on the support level, and this is the retest. After this retest, it once again started to move in an upward direction.
![](https://senthilstocktrader.com/wp-content/uploads/2023/10/Breakout-and-retest-trading-strategy-example-01-1024x498.jpg)
Entry and Stop loss
So where do you need to take entry on this type of retest?
If you see any breakout like this, you need to add an alert on this level, so when the stock price touches this level, first, you need to check the candle type, like what type of candle it is.
If it is a bullish candle, you could make an entry if the next candle breaks the high of this bullish candle.
Look below chart for the entry point. You could put stop loss below the support level. One of the best advantages of this retest strategy is you can put tight stop loss.
![](https://senthilstocktrader.com/wp-content/uploads/2023/10/Breakout-and-retest-trading-strategy-entry-exit-example-01-1024x576.jpg)
Example 2
Let’s look at another chart. I drew the resistance level in the chart below, and one green candle broke this resistance level strongly.
After breaking that resistance level, the stock price moved in an upward direction for a few days, and it started to fall down and reached the previous resistance level.
![](https://senthilstocktrader.com/wp-content/uploads/2023/10/Breakout-and-retest-trading-strategy-example-02-1024x498.jpg)
Entry and Stop loss
Now that resistance level acts as the support level, so at that resistance level, it took the retest. You could make an entry if the price breaks the high of the retest candle. You could place your stop loss below the support level.
![](https://senthilstocktrader.com/wp-content/uploads/2023/10/Breakout-and-retest-trading-strategy-entry-stoploss-example-02-1024x576.jpg)
So, guys, this is another best example of a breakout and retest strategy.
Example 3
Let’s look at another chart. The below chart is another best example of the breakfast and retest strategy. The green candle break the resistance level which I drew. After breaking that resistance level, it moved upward and fell for a few days, then took a retest.
![](https://senthilstocktrader.com/wp-content/uploads/2023/10/Breakout-and-retest-trading-strategy-example-03-1024x498.jpg)
Entry and Stop loss
You could also make an entry on the breakout level, but if you take an entry there, you must put the long stop loss below the swing low (see the chart below).
![](https://senthilstocktrader.com/wp-content/uploads/2023/10/Breakout-and-retest-trading-strategy-entry-big-stoploss-example-03-1024x576.jpg)
So you need to wait until the retest happens. After the retest, if you take an entry, you could place the tight stop loss.
![](https://senthilstocktrader.com/wp-content/uploads/2023/10/Breakout-and-retest-trading-strategy-entry-stoploss-example-03-1024x576.jpg)
So, guys, this is the breakout and retest trading strategy. Remember, practice makes perfect, so start small until you feel confident with this method. If you found this article helpful, please share it with your trading friends and leave any questions or comments below.
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