Breakout & Retest Strategy

Overview

The Breakout & Retest strategy solves one of the most common trader frustrations: entering a breakout only to watch price reverse and stop you out before the real move begins. By waiting for the retest, you enter with:

1. 1Confirmation that the breakout is real
2. 2Lower risk (stop is tighter — just below the breakout level)
3. 3Better R:R than chasing the initial breakout

This strategy works across all markets — stocks, forex, crypto, and futures — and across multiple timeframes.

The Market Structure Behind the Pattern

When price breaks above a resistance level:

• Bears who were short at that level are now underwater (stops being hit)
• New bulls who missed the breakout are waiting for a pullback to enter
• Bulls who sold at resistance may re-enter on the retest

This creates a natural demand zone at the previously broken resistance, which becomes support on a retest.

Identifying Valid Breakout Levels

High-quality levels:

• Multi-touch resistance (3+ tests over weeks or months)
• Levels that caused sharp reversals in the past
• Round numbers with history of significance
• Prior all-time highs or 52-week highs
• Daily/weekly pivot highs or lows

Skip these:

• Single-touch points
• Levels from only a single day's price action
• Levels very close together (clustering)

Entry Rules

1. 1Mark the level using horizontal line at the breakout zone
2. 2Wait for breakout — price must close above/below on the relevant timeframe (daily for swing, 15m/1H for intraday)
3. 3Wait for the retest — price pulls back to the level; look for rejection candle with declining volume
4. 4Enter on rejection confirmation — close of the rejection candle or limit order at the level

Stop Loss Placement

Place stop below the retest low:

• For clean retests: below the low of the rejection candle
• Maximum stop: If retest goes >1.5–2% below the breakout level, the breakout is likely false

Take Profit Targets

Measured move method:

The expected move after a valid breakout retest equals the height of the base before the breakout.

If the base (support to resistance) was $10 wide and the breakout was at $100, target $110.

Partial exit strategy:

• Exit 50% at 1:1 R:R, move stop to breakeven
• Hold remainder to measured move target

Common Mistakes

1. 1Entering immediately on breakout (not waiting for retest) — win rate drops significantly
2. 2Trading every level — only trade multi-touch levels
3. 3Ignoring broader market context — a stock breaking out in a broad market selloff has low continuation probability
4. 4Stop too tight — give 0.1–0.2% buffer below the level for wick clearance

Example Trade: AAPL Breakout Retest

• AAPL rejected at $195 three times over 6 weeks
• Price closes above $195 on 1.4× average volume
• 3 days later, AAPL pulls back to $194.80–$195.20 with a hammer on declining volume
• Entry: $195.60 | Stop: $193.80 | Target: $199.50 | R:R: 2.2:1

How to Track in Tradapt

Tag all breakout-retest trades in Tradapt. After 20+ trades, analyze:

• What % of retests successfully held the level?
• Was win rate better on multi-touch vs. fewer-touch levels?
• How did broader market direction affect outcomes?

This data will refine your level-selection criteria over time.