Introduction
A RetestRetestA price movement back to a previously broken support or resistance level to verify it holds as the opposite barrier.Read full glossary entry → occurs when the price returns to visit a recently broken supportSupportA price level where buying pressure is strong enough to prevent the price from falling further. It represents a "floor" on the chart.Read full glossary entry → or resistanceResistanceA price level where selling pressure is strong enough to prevent the price from rising further. It represents a "ceiling" on the chart.Read full glossary entry → level from the opposite side. It represents the ultimate confirmation of a trendTrendThe general direction in which a security or market is moving over time.Read full glossary entry → breakoutBreakoutA price movement through an established support or resistance level. A breakout is often accompanied by increased volume, signaling strong momentum.Read full glossary entry →, validating the Role Reversal principle:
- Old ResistanceResistanceA price level where selling pressure is strong enough to prevent the price from rising further. It represents a "ceiling" on the chart.Read full glossary entry → holding as New SupportSupportA price level where buying pressure is strong enough to prevent the price from falling further. It represents a "floor" on the chart.Read full glossary entry →.
- Old Support holding as New Resistance.
Retests are highly favored by conservative traders because they provide a lower-risk entry point than buying breakouts immediately.
Why It Matters
- Avoids Fakeouts: Many breakouts turn out to be false breakouts (bull or bear traps). Waiting for a successful retestRetestA price movement back to a previously broken support or resistance level to verify it holds as the opposite barrier.Read full glossary entry → confirms that the breakoutBreakoutA price movement through an established support or resistance level. A breakout is often accompanied by increased volume, signaling strong momentum.Read full glossary entry → is real.
- Favorable Entry: Entering on a retest gives you an entry price closer to the support floor, allowing for a tighter stop-loss and a higher risk-to-reward ratioRisk-to-Reward RatioA measure used to compare the potential profit of a trade against its potential loss. A ratio of 1:2 means the trader is risking $1 to potentially mak...Read full glossary entry →.
- Confirms Role Reversal: Verifies that market participant psychology has flipped at the breakout boundary.
Core Concepts
- Retest Mechanics: Price breaks a level, rallies, retraces back to the broken level, and bounces.
- Validation: A level holds successfully, proving demand or supply has stepped in.
- Confirmation Entry: Buying only after the retest bounce candle closes, providing maximum confirmation.
Identification Rules
- Verify the Breakout: Ensure the price has broken and closed beyond a clear horizontal or diagonal level.
- Watch the Retracement: The price must drift back to the level on light volumeVolumeThe total number of shares, contracts, or units of a security traded during a specified time period.Read full glossary entry →.
- Analyze Rejections: Look for wicks testing the level and closing above it (for a support retest), indicating demand.
- Bounce Confirmation: Wait for a bullish candle (e.g. Hammer) to confirm the retest holds.
Trading Setup
- Entry: Buy long when a bullish reversal candle forms and closes on the retest of the broken resistance level.
- Stop-Loss: Place the stop-loss just below the low of the retest candle or the broken level.
- Take Profit: Target the high of the breakout wave.
Common Mistakes
[!WARNING]
- Buying without Bounce: Buying as soon as the price touches the broken level without waiting for a bounce candle. If the level fails, you buy right into a fakeout.
- Ignoring High VolumeVolumeThe total number of shares, contracts, or units of a security traded during a specified time period.Read full glossary entry → Retests: Buying a retest that falls on high volume. High volume indicates that sellers are pushing price back inside the range with strength.
- Not Every Breakout Retests: Some high-momentum breakouts never retest. Do not force trades if price leaves without you.