Breakout & Retest

A breakout and retest looks for price to break an important level, return to test that level, and then continue in the direction of the breakout.

What is a breakout and retest?

Price first moves decisively through a meaningful support or resistance level. Instead of chasing the initial breakout, you wait for price to return toward the broken level and look for confirmation that it has changed roles.

The level matters first.

Not every new high or low is a meaningful breakout. Focus on levels the market has clearly respected—prior highs or lows, consolidation boundaries, or other obvious areas where buyers and sellers previously reacted.

What confirms the setup?

The retest should show rejection of the broken level. Price may briefly trade through it, but you want to see the market regain the level and begin moving back in the direction of the breakout.

Where is the trade wrong?

The setup is invalid if price fails to hold the breakout area and moves decisively back through the level. A failed retest suggests the breakout may have lacked genuine conviction.

Managing the trade.

Define the invalidation level before entry. If the retest holds and momentum returns, manage the position around the developing structure rather than reacting to every small fluctuation.

Common mistakes.

Chasing the initial breakout. Trading insignificant levels. Entering before the retest confirms. Using a stop so tight that normal price movement forces an unnecessary exit.

EXAMPLE TRADE

Market: MNQ (Micro Nasdaq)
Context: Resistance tested multiple times
Setup: Breakout above resistance, then retest
Entry: 19,900.00
Stop: 19,850.00 (50 points)
Target: 20,050.00
Result: +150 points
Contracts: 5
Net P&L: +$1,500.00

KEY TAKEAWAY

The breakout creates the opportunity. The retest provides the confirmation. Patience often produces a cleaner entry than chasing the initial move.

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