The Trendline Retest Strategy is a structured trading approach that focuses on entering trades after a confirmed break and retest of a trendline. Instead of trading the breakout immediately, this method waits for price to return to the broken trendline—now acting as support or resistance—to validate the move. It’s ideal for traders who prefer confirmation over prediction, reducing the risk of false breakouts.

This strategy is highly effective across forex, indices, commodities, and crypto, particularly on H1, H4, and daily timeframes.

What Is a Trendline Retest?

A trendline retest occurs when price breaks through a trendline and later pulls back to it, respecting the trendline as a new support or resistance.

Key traits of a valid retest:

• The break happens with a strong candle or volume spike
• The pullback is controlled and not overly volatile
• A clear rejection pattern forms at the trendline

Strategy Objective

• Wait for a confirmed break of a valid trendline
• Enter on the retest of the broken trendline, once a price action signal confirms continuation
• Trade with defined risk and clear target zones

Indicators and Tools Required

• Candlestick chart
• Manual trendline drawing
• Optional: Volume indicator, RSI or MACD for momentum support

Step-by-Step Strategy Setup

Step 1: Identify and Draw a Valid Trendline

• In an uptrend: connect at least two higher lows
• In a downtrend: connect at least two lower highs
• Trendline must be clean and respected multiple times

Step 2: Wait for a Trendline Break

• Price breaks the trendline with a strong candle
• Preferably accompanied by volume increase or momentum breakout (e.g. RSI > 60 or MACD crossover)

Step 3: Wait for the Retest

• Price pulls back to the broken trendline
• This retest shows whether the market respects the level as new support or resistance
• Avoid entering too early—wait for confirmation

Step 4: Look for Price Action Confirmation

• Reversal candle at the trendline (e.g. pin bar, engulfing candle, inside bar)
• Long wick rejection or strong body candle confirms buyer or seller intent
• Optional: RSI divergence or MACD agreement

Step 5: Entry

• Enter at the close of the confirmation candle
• Aggressive traders may use limit orders at the trendline touch with tight stops

Step 6: Stop Loss

• Place SL below the confirmation candle for longs, above for shorts
• Or use 1x ATR below/above the retest candle to adjust for volatility

Step 7: Take Profit

• Use previous swing high/low as target
• Or apply Fibonacci extension (127.2%, 161.8%) for continuation setups
• Ensure at least a 1:2 risk-to-reward ratio

Example: Gold (XAU/USD) H1 Trendline Retest

• Downtrend line drawn from recent lower highs
• Price breaks trendline at $2,320 with strong bullish candle
• Pulls back to retest the trendline around $2,312
• Bullish engulfing candle forms on retest
• Entry: Buy at $2,314
• Stop Loss: $2,308
• Take Profit: $2,328 (swing high)

Best Timeframes and Markets

• H1, H4, Daily for structure and reduced noise
• Forex: EUR/USD, GBP/JPY, USD/CHF
• Indices: NAS100, SPX500
• Commodities: Gold, Oil

Optimisation Tips

• Stronger signals when confluence exists (e.g. trendline + Fibonacci + support zone)
• Avoid trendlines with only one touch or unclear structure
• Higher volume at breakout and confirmation increases probability of success
• Consider using trailing stops to ride extended moves

Advantages

• High precision with minimal risk
• Reduces false breakout trades
• Combines price action, structure, and confirmation
• Works well with other tools like Fibonacci and moving averages

Limitations

• May miss fast breakouts that don’t retest
• Requires patience and discipline to wait for setup
• Invalid if trendline retest fails or market enters consolidation

Conclusion

The Trendline Retest Strategy offers a disciplined, high-probability approach to trading breakouts with confirmation. By focusing on the retest rather than the initial move, traders can enter with greater confidence and reduce the likelihood of being caught in a false breakout.

To master this strategy and learn how to combine it with institutional price action techniques, risk control, and multi-timeframe analysis, enrol in our Trading Courses and elevate your technical trading game.