Breakout And Retest Strategy: How to Trade Technical Breakouts Effectively

🧠 What Is the Breakout And Retest Strategy ?

The Breakout And Retest Strategy is a popular trading approach that allows traders to enter confirmed breakout setups with better risk/reward. Instead of jumping into a breakout the moment it happens β€” which often leads to getting trapped in a fakeout β€” this strategy waits for price to retest the breakout level and show signs of support holding.

Breakouts often occur when price pushes through a significant resistance zone (or down through a support level, in shorts). But many breakouts fail. That’s why the retest is crucial: it acts as confirmation that the former resistance has turned into new support β€” a concept known as role reversal.

This strategy can be used in:

  • πŸ”Ή Swing trading (daily/4H breakouts)

  • πŸ”Ή Intraday trading (15m/1H setups)

  • πŸ”Ή Earnings/macro breakout plays

  • πŸ”Ή Trend continuation patterns (flags, wedges, channels)


🧩 Key Elements of the Strategy

βœ… 1. Identify a Clear Breakout Level

This level should have been tested multiple times β€” a resistance zone where price previously failed. The more touches, the more significant the breakout. Volume buildup before breakout is often a clue.

βœ… 2. Wait for the Breakout

Once price breaks above resistance with increased volume, don’t rush in. Let it go. Often, price will extend for a bit and then pull back. Patience is key.

βœ… 3. Look for the Retest

This is the heart of the strategy. Price pulls back to the previous resistance zone β€” now expected to act as support. You want to see:

  • A clean retest wick into the level

  • Buyers stepping in (volume spike or bullish candle)

  • Hold above key moving averages (e.g. EMA21 on 1H or 4H)

The best retests often occur within 1–3 candles of the breakout.

βœ… 4. Entry on Confirmation

Enter on a bullish reversal sign near the retest level:

  • Hammer candle or engulfing

  • Volume spike or trendline reclaim

  • Holding VWAP (intraday) or EMA (swing)

Set your stop loss just below the retest wick or below the breakout structure.


🎯 Entry, Stop, and Target Rules

Element Rule
Entry On confirmation near retest zone after breakout
Stop Loss Below the retest wick or structural low
Target Measured move from breakout pattern or resistance ahead

Use risk/reward β‰₯ 2:1. If price consolidates after retest, watch for continuation patterns like bull flags or pennants.


πŸ”Ž Chart Example: Daily Breakout And Retest

Imagine a stock breaks out above $30 after weeks of consolidation. You don’t chase. It pulls back to $30, tests the level with a wick, and then prints a strong green candle with volume.

You enter at $30.50
Stop at $29.40
Target at $33–34

This setup offers both technical clarity and better entry timing.


πŸ›‘ Common Mistakes to Avoid

  • ❌ Entering before the retest forms

  • ❌ Retest is too deep β€” undercutting the level (likely fakeout)

  • ❌ No confirmation (don’t buy blindly on every pullback)

  • ❌ Using too tight stops that don’t allow breathing room

The key is confirmation and patience.


πŸ“ˆ Best Market Conditions for This Strategy

  • High-volume breakout environments

  • Trending markets with healthy pullbacks

  • Earnings/macro-driven breakout gaps

  • Low volatility during the pullback phase

Avoid choppy or range-bound markets β€” fakeouts are common there.


πŸ§ͺ Strategy Type & Tag

Category: πŸ“Š Breakout Day Strategy
Tag: Breakout And Retest Strategy

This strategy is often paired with watchlist names that show volume-led breakouts, and is commonly used for swing entries after daily chart breakout, especially on setups flagged in newsletters like TizyCharts.

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