Breakout & Retest

Key idea

A breakout is only half the setup. The stronger entry usually comes on the retest — when price returns to the broken level and holds it as new support (or resistance), showing the market has accepted the new range rather than just poked through it.

How to apply it

• Confirm the initial breakout with a close beyond the level, ideally with above-average volume.
• Wait for price to pull back toward the broken level instead of chasing the initial move.
• Look for the retest to hold — smaller candles, reduced downside follow-through, a clean rejection wick.
• Set invalidation just beyond the level on the wrong side; if the retest fails and price re-enters the old range, the setup is off.

Example

A stock breaks above a multi-week resistance zone on strong volume, then pulls back to that same zone two days later. It holds with a small-bodied candle and reclaims to the upside — that retest hold is the higher-quality entry versus chasing the original breakout candle.

Checklist

• The initial break closed beyond the level with real participation
• I waited for a retest instead of chasing the breakout candle
• The retest showed signs of holding (small range, rejection wick)
• My invalidation is defined just beyond the level on the failure side

Common mistakes

• Chasing the breakout candle at an extended price
• Treating any pullback as a valid retest without checking if it holds
• Ignoring volume on the initial breakout
• Not defining invalidation before entering the retest