The Break-and-Retest Advanced Strategy is a sophisticated price action approach that captures market momentum with precise entries after a confirmed breakout. Rather than chasing price after it breaks a key level, this strategy waits for a controlled pullback (retest), providing a high-probability setup with clearly defined risk.

This technique is favoured by institutional traders and advanced retail traders because it aligns with natural market behaviour—breakouts often retrace to retest the level before continuing in the breakout direction.

What Is a Break-and-Retest Setup?

A break-and-retest setup occurs when price breaks through a significant support, resistance, trendline, or pattern neckline, and then comes back to test that broken level before resuming the trend.

• Break: A strong, clean breakout of a key level with momentum.
• Retest: Price returns to test the breakout zone, confirming it has flipped role (e.g. resistance becomes support).
• Continuation: Upon successful retest, price continues in the direction of the breakout.

This strategy is ideal for entering trends early with tight stops and large reward potential.

How to Identify a Valid Break-and-Retest

Follow these steps to filter only the strongest setups:

1. Identify a Clear Level
Use horizontal support/resistance, trendlines, or chart patterns like double tops/bottoms, head and shoulders, or wedges.

2. Watch for a Strong Breakout Candle

• Wide-bodied candle with increased volume
• Closes beyond the level
• Avoid breaks with weak candles or wicks only

3. Wait for the Retest
Price should return in a controlled manner, not aggressively retrace. Shallow pullbacks are a good sign of strength.

4. Look for Confirmation on Retest

• Rejection candles (e.g. pin bars, doji)
• Bullish/bearish engulfing patterns
• RSI or MACD divergence (optional)
• Break of structure on lower timeframes

Entry Techniques

Aggressive Entry

• Enter as price taps the level, with a stop just beyond the opposite side.
• Best used when the breakout is exceptionally strong.

Confirmation Entry

• Wait for a bullish or bearish signal after the retest.
• Ideal when retest forms a clear rejection candle or engulfing pattern.

Structure Entry

• Drop to a lower timeframe (e.g. M15 or M5) and wait for internal structure shift (change of character or ChoCH) before entering.

Stop Loss and Take Profit Placement

• Stop Loss: Place just beyond the broken level (below support or above resistance).
• Take Profit:
  • Use the next S&R zone or Fibonacci extension level
  • Target a reward-to-risk ratio of 1:2 or 1:3

Real Example: Break-and-Retest on EUR/USD

• On the H4 chart, EUR/USD breaks above a key resistance at 1.0880.
• Price pulls back 24 hours later, retesting the level with a bullish pin bar.
• Entry: Buy at 1.0885
• Stop Loss: 1.0855
• Take Profit: 1.0960
• Reward-to-risk: 2.5:1

This setup delivers precision and confidence by waiting for a retest confirmation.

Confluence Factors to Boost Accuracy

• Trend Alignment: Trade only in the direction of the higher timeframe trend.
• Volume Confirmation: Look for rising volume on the breakout and lower volume on the retest.
• Round Numbers: Retests that align with psychological levels (e.g. 1.1000, 150.00) are more respected.
• Pattern Completion: Works well with breakouts from flags, channels, or rectangles.

When Not to Trade the Break-and-Retest

Avoid setups when:

• The breakout is weak or news-driven without follow-through.
• Price consolidates too long after the break—momentum may be lost.
• The retest forms deep pullbacks or engulfs the entire breakout.

Benefits of the Break-and-Retest Strategy

• Clear entry and exit rules
• Low drawdown and high reward potential
• Works on all timeframes and markets
• Easy to combine with other price action tools

Common Mistakes to Avoid

• Entering before the retest occurs
• Trading low-quality levels with no clean structure
• Ignoring confirmation and chasing price
• Overlooking higher timeframe direction

Conclusion

The Break-and-Retest Advanced Strategy is a powerful technique for capturing momentum with precision. It allows traders to avoid false breakouts while entering with confidence and favourable risk-to-reward. With disciplined execution, this strategy can deliver consistent results across trending markets.

To learn how to apply this method professionally and combine it with advanced price action tools, enrol in our elite Trading Courses tailored to help you think like an institution and trade with confidence.