Breakout is very common price action in the market, it represents a breakout of the price from a certain area. Usually, for breakout traders, breaking false is the biggest problem. And to overcome this situation, traders have devised many solutions, one of which is retest trading, this article will guide in detail this solution so that you can apply it to breakout trading.

What is Retest? The essence behind the retest

Retest understands briefly it is a price breaking the previous high/low, but then immediately returned to the price level, then bounced back and moved in the direction of its breakout.

Take, for example, breaking a bullish threshold to explain price movement. The reason for this phenomenon is that when the price gets close to the resistance level, a series of pending orders are placed above the resistance zone, when the price has enough force to stop them, these orders are executed and create more force to push prices up. . When the bank traders trade to make "odd" profits they will match orders when the price increases by a distance. Due to the large volume, the force to push the price down is relatively strong, plus the fact that early traders who are seeing a decline in profits when the price turns around can exit the order, creating more downforce.

At the breakout zone, the price has now made a high-high in the price structure creating the perception that the market will initiate/resume an uptrend, which results in a large number of buy orders being pushed into. The market plus traders who "missed" the previous breakout jumped in to buy because the signal of breaking the threshold ahead is clear and the current price is quite reasonable. All create strong pushup prices.

Determine the retest area

As mentioned, the retest area here is also the threshold break zone. The common myth is to see this area at a specific price. In practice prices often have a certain level of volatility in response to this zone.



Retesting is a price zone that gives the trader the following benefits:
  • More flexibility when deciding to order.
  • Cover many nearby bottom vertices so you don't have to choose this one, leave the other.
Determining the retest zone requires two main factors, including the neighboring highs/lows and the opening/closing price of the candle. If the price range is relatively wide and you cannot determine which one is more noticeable then move down to a lower time frame to observe how price momentum is changing.

Enter the order

To increase the probability of retest trading you should enter orders based on candlestick patterns, not whenever the retest price breaks the threshold.


When reversal candlestick patterns appear, you need to move down to the low frame to get a more specific view of the signal you receive before entering the order.

Because the stop loss position can be flexibly adjusted, just above the price pattern or above the retest zone.

Notes

Do not use pending orders: you cannot know for sure whether the retest zone will be broken or not, so the best way is to observe the reactive price in this area before making a decision.

First retest: if you want the trade to be effective, you should only trade the first retest zone, if the price returns to this zone twice or more, it shows that the price momentum (in the breakout direction) has been lost.


Retest time. Besides the retest you need to pay attention to the time between threshold break and retest, if it is too far, there is a high chance that it will fail.


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