The Break and Retest strategy is a trading method that helps you confirm market breakouts before entering a trade. Instead of acting immediately after a breakout, you wait for the price to return to the broken level – now acting as support or resistance – before making your move. This approach minimizes false breakouts and improves trade accuracy.
Key Points to Know:
- Purpose: Identify breakouts and confirm their validity through retests.
- How it Works: Price breaks a level (support/resistance), retests it, and confirms the breakout.
- Benefits: Reduces risks, improves timing, and works across forex, stocks, and commodities.
- Tools: High-performance trading setups and platforms like TradingView or NinjaTrader enhance execution.
Patience, proper risk management, and the right tools are crucial for success with this strategy.
How to Execute the Break and Retest Strategy
Finding Key Support and Resistance Levels
The backbone of the Break and Retest strategy lies in correctly identifying support and resistance levels. These are critical price points where buying or selling activity tends to cluster. Support levels sit below the current price, signaling areas of buying interest, while resistance levels are above the current price, indicating selling pressure. These levels often act as psychological markers that influence traders’ decisions.
To locate these zones, analyze your charts for areas where prices have consistently bounced or stalled over time. Levels that have been tested multiple times across various timeframes are generally more dependable. Remember, these are better understood as zones rather than precise lines. Round numbers – like $50.00, $100.00, or key index levels such as 4,000 on the S&P 500 – frequently serve as natural support or resistance points. Additionally, a former support level can turn into resistance, and vice versa. Longer timeframes often carry greater weight in identifying these levels. Once these zones are clearly marked, you’re ready to confirm breakouts with proper timing.
Waiting for a Confirmed Breakout
Patience is key – don’t jump in too early and risk unnecessary losses. A breakout is confirmed when the price moves decisively above a resistance level or below a support level, typically accompanied by higher-than-average trading volume. This signals the potential start of a new trend. Wait for the close of your chosen timeframe to ensure the move holds. Momentum candles – those significantly larger than preceding candles, often double or triple in size – can further validate the breakout’s strength.
Once the breakout is confirmed, the broken level often flips its role. For instance, in an upward breakout, the previous resistance may now act as support, and the reverse holds true for downward breakouts.
Watching for Retests and Confirmation Signals
After confirming the breakout, the next step is to watch for a retest of the broken level. It’s common for prices to pull back and test this level before continuing the trend. This retracement offers an opportunity for a more favorable entry.
Look for candlestick patterns like pin bars, engulfing candles, hammers, or shooting stars near the retest zone. These patterns can provide insights into market sentiment. Pay attention to volume as well: a proper retest often shows reduced volume during the pullback, followed by a volume increase if the level holds. The retest should stay near the breakout zone; if the price moves too far back into the prior range, it may signal a weakening setup. Additional signs, such as multiple wicks around the level or bounces that align with the trend, can indicate that the broken level is still respected.
Using multiple timeframes can improve your precision. Higher timeframes help you understand the broader market trend, while lower timeframes allow you to fine-tune your entry. For example, historical data shows that a 20-day high breakout strategy in gold yielded an average gain of 0.86% over the next 20 days with a 53% win ratio. Similarly, S&P 500 strategies incorporating volume confirmation have delivered an average gain of 1.15% per trade.
When it comes to timing, you have two main approaches. An aggressive strategy involves entering as soon as the price touches the retest level. A more cautious approach waits for additional confirmation, such as a clear candlestick pattern or a break of the initial rejection, to improve the risk-to-reward balance.
Technical indicators can also enhance your decision-making. The RSI helps identify momentum shifts and potential divergences, MACD measures trend strength through crossovers and histogram changes, and VWAP acts as a dynamic benchmark for support or resistance based on volume-weighted prices.
A well-structured approach to the Break and Retest strategy can improve your chances of success while keeping risk under control.
Best Tools and Software for Precision
Top Charting Platforms for Day Traders
Once you’ve nailed the art of executing Break and Retest strategies, the right charting tools can make all the difference. A solid charting platform should combine powerful technical features with the flexibility to access your data across multiple devices. TradingView is a standout option, boasting a community of over 90 million investors. With subscription plans ranging from $12.95 to $499.95 per month, it offers a mix of advanced technical tools, community-driven insights, and excellent mobile access, making it perfect for traders on the go.
For those who value automation, TrendSpider is a strong contender. Priced at $149 per month, it leverages AI to automate technical analysis, including pattern recognition – an essential feature for spotting Break and Retest setups without manually scanning charts. It holds a solid 4.4 out of 5 rating [22, 24].
ProRealTime is another excellent choice, offering a free version with end-of-day data and paid options for real-time feeds. With over a million users globally and a 4.8 out of 5 rating [22, 23], its clean interface and advanced tools make identifying support and resistance levels straightforward.
If you’re looking for a platform with free advanced charting, backtesting, and trade simulation, NinjaTrader is worth exploring. It provides customizable charts and essential drawing tools for marking key levels, making it a favorite among traders focused on strategy development.
When choosing a platform, focus on features like customizable charts, a wide library of technical indicators, built-in screeners, backtesting tools, and direct broker integration. These features can significantly enhance your trading precision. Just as important, pairing your platform with high-performance hardware ensures you’re fully equipped to act quickly and effectively.
Benefits of High-Performance Trading Computers
Speed is everything in day trading. For strategies like Break and Retest, where timing is critical, even a slight delay can impact profitability. While high-frequency trading operates at lightning-fast speeds of around 10 milliseconds, retail traders still need reliable and fast systems to make the most of market opportunities.
Imagine waiting for a retest confirmation and then missing your entry because of system lag. High-performance trading computers eliminate this risk by providing the processing power needed to handle multiple charting platforms simultaneously.
Consider hardware designed specifically for trading. DayTradingComputers offers models like Lite, Pro, and Ultra, starting at $3,569. These systems are equipped with top-tier processors, DDR5 RAM, and NVMe SSD storage, ensuring smooth performance and rapid execution. Dual-monitor setups are also supported, enabling you to track higher timeframe trends and lower timeframe entries side by side. Solid-state drives further enhance performance with faster boot times and quicker software operation, while dedicated graphics cards ensure clear, detailed chart rendering – even with complex indicators.
Charting Platform Comparison
Platform | Monthly Cost | Key Strengths | Best For | Rating |
---|---|---|---|---|
TradingView | $12.95 – $499.95 | Community insights, mobile access | Traders seeking social features | 4.0/5 |
ProRealTime | Free (EOD) / Paid (RT) | Clean interface, free version | Cost-conscious traders | 4.8/5 |
NinjaTrader | Free (charting) | Advanced charting, backtesting | Strategy development | N/A |
TrendSpider | $149 | AI automation, pattern recognition | Automated analysis | 4.4/5 |
MetaStock | $100 + data feeds | Comprehensive analysis suite | Professional analysis | N/A |
Your choice of platform should align with both your trading style and your budget. TradingView is an excellent all-rounder, especially for traders who appreciate community-driven insights. If you’re looking for professional-grade tools without breaking the bank, ProRealTime is worth considering. Meanwhile, NinjaTrader is a great starting point for traders honing their Break and Retest strategies, thanks to its accessible free charting tools.
Setting Up Your Trading Hardware for Break and Retest Strategies
Hardware Requirements for Day Traders
When it comes to Break and Retest strategies, timing is everything. A stock breaking through resistance can create a fleeting opportunity, and having the right hardware can be the difference between seizing that moment or missing out entirely.
For starters, your processor should be up to the task. Look for a CPU with a single-thread score of at least 2,500 – 3,500+ is even better for active traders. Aim for at least 8 cores (though 24 cores is ideal) with clock speeds ranging from 3.0 GHz to 5.8 GHz. This ensures your system can handle the rapid calculations needed to monitor multiple timeframes simultaneously.
Memory is another critical factor. While 8GB might suffice for basic setups, 16GB is better for multi-monitor configurations, and 32GB or more is recommended for advanced trading strategies involving backtesting software and real-time scanners.
Storage speed also matters. A 512GB SSD should be your minimum, but opting for NVMe SSDs will give you faster data access and greater reliability compared to traditional hard drives.
Dual-monitor setups are a practical choice for most traders, letting you keep an eye on higher timeframe trends, lower timeframe entries, market depth, and news feeds all at once. For example, you can track an initial breakout on one screen while monitoring the retest on another.
Finally, a stable internet connection is non-negotiable. You’ll need download speeds of at least 20 Mbps, upload speeds of 5 Mbps, and a ping under 15 milliseconds. A wired Ethernet connection is your best bet for consistent performance during those critical moments.
"Day trading requires lightning-fast decisions and precise execution, making the choice of computer hardware crucial for success."
- Fausto Pugliese, Founder & CEO of Cyber Trading University
These hardware considerations are the foundation for effective trading systems tailored to meet the demands of Break and Retest strategies.
DayTradingComputers: Custom Solutions for Traders
DayTradingComputers has designed systems specifically for the unique needs of traders. These aren’t just high-performance computers – they’re purpose-built machines optimized for the demands of day trading. According to the company, users of their systems traded over $1.3 trillion last year, and they claim their setups can improve win rates by up to 350%.
The DayTrader Lite is their entry-level option for serious traders, priced at $3,569. It features an AMD Ryzen 5600X processor with 8 cores, an NVIDIA GeForce RTX 3070 Ti SUPER graphics card, 32GB of DDR5 memory, and a 1TB NVMe SSD. Dual-monitor support ensures you can manage setup development and execution screens side by side.
For those managing more complex strategies, the DayTrader Pro steps it up. At $4,569, it boasts an AMD Ryzen 7900X processor with 12 cores, 64GB of DDR5 memory, a 2TB NVMe SSD, and an NVIDIA GeForce RTX 4070 Ti SUPER graphics card. This model is ideal for monitoring multiple Break and Retest setups across various timeframes.
At the top of the range is the DayTrader Ultra, priced at $5,569. It’s built for professional traders who need maximum performance. It comes equipped with an AMD Ryzen 9800X3D processor featuring 16 cores, 128GB of DDR5 memory, a 4TB NVMe SSD, and an NVIDIA GeForce RTX 4090 SUPER graphics card. This setup is perfect for running complex backtests, multiple platforms, and real-time market scanners all at once.
These systems also include trading-specific optimizations, such as enhanced cybersecurity, compatibility with tradecopier software, and features tailored for backtesting. They work seamlessly with major trading platforms like NinjaTrader, Sierra Chart, and MetaTrader, ensuring smooth integration into your trading workflow.
Hardware Comparison Table
Here’s a side-by-side look at the key features of DayTradingComputers’ models:
Feature | DayTrader Lite | DayTrader Pro | DayTrader Ultra |
---|---|---|---|
Price | $3,569.00 | $4,569.00 | $5,569.00 |
Processor | AMD Ryzen 5600X (8 cores) | AMD Ryzen 7900X (12 cores) | AMD Ryzen 9800X3D (16 cores) |
Graphics | NVIDIA GeForce RTX 3070 Ti SUPER | NVIDIA GeForce RTX 4070 Ti SUPER | NVIDIA GeForce RTX 4090 SUPER |
Memory | 32GB DDR5 5200MHz | 64GB DDR5 5200MHz | 128GB DDR5 5200MHz |
Storage | 1TB NVMe M.2 SSD | 2TB NVMe M.2 SSD | 4TB NVMe M.2 SSD |
Monitor Support | Up to 2 | Up to 2 | Up to 2 |
Best For | New day traders | Active traders | Professional traders |
The progression from Lite to Ultra reflects the increasing demands of different trading styles. The Lite model is great for traders just starting to explore Break and Retest setups, while the Pro model accommodates more advanced, multi-timeframe analysis. For professionals, the Ultra model offers the power to run multiple platforms and handle complex strategies without breaking a sweat.
Each system is rigorously tested and optimized to ensure smooth performance, eliminating hardware-related issues that could lead to missed opportunities. Investing in the right hardware is more than just a convenience – it’s a crucial step toward trading success. With these setups, you’ll be equipped to execute trades with precision and confidence.
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The Best Break and Retest Trading Strategy (Full Guide)
Risk Management and Common Mistakes
After discussing execution strategies, it’s crucial to focus on two key aspects that can make or break your success with Break and Retest trades: managing risks effectively and steering clear of common mistakes.
Common Mistakes to Avoid
The Break and Retest strategy might look simple on the surface, but there are several traps traders often fall into. These missteps can turn promising setups into costly errors. Recognizing these pitfalls is the first step to sidestepping them.
One of the biggest errors is entering too early. Jumping into a trade right after a breakout might seem tempting, but waiting for the retest to confirm the setup can save you from false entries and unnecessary losses.
Another frequent issue is misreading market structure. Not every pullback is a valid retest. Only consider setups where the price clearly rejects the broken level. If the price cuts through the previous support or resistance without hesitation, it’s likely not a reliable retest.
Ignoring higher timeframe bias is another major mistake. A setup that looks perfect on a 5-minute chart might go against a stronger trend visible on a daily chart. Always cross-check multiple timeframes before committing to a trade.
Finally, overtrading and poor planning can drain your account over time. Entering trades without a clear plan for entry, exit, and risk management is a recipe for disaster.
To avoid these traps, stick to a disciplined approach. Wait for the retest to confirm the price direction, prioritize setups with strong volume and trend-confirmation signals, and have a comprehensive trading plan in place. Focus on quality over quantity – trade only high-confidence setups rather than chasing every opportunity.
Stop-Loss Placement and Position Sizing
A solid risk management plan is essential to avoid turning small mistakes into big losses. In Break and Retest strategies, where you place your stop-loss and how you size your position can make all the difference.
Stop-loss placement needs to be precise yet flexible. For long trades, place your stop-loss just below the new support level; for short trades, position it just above the new resistance. This gives the trade enough room to develop while protecting you if the level fails. Avoid placing stops too tight – market noise can trigger unnecessary exits.
Position sizing is equally critical. Limit your risk to 1–2% of your account on any single trade. As legendary trader Bruce Kovner once said:
"I know where I’m getting out before I get in. Whenever I enter a position, I have a predetermined stop. That is the only way I can sleep."
To calculate your position size, first determine your stop-loss level. Then, based on your risk tolerance, figure out how many shares or contracts to trade. Many traders also use a Risk-Reward Ratio of at least 1:2 or 1:3 to ensure long-term profitability.
You’ll also need to decide between two entry styles: an aggressive entry, where you place the trade as soon as the price touches the retest level (allowing for a tighter stop but higher risk if the level fails), or a conservative entry, which waits for additional confirmation but might require a wider stop.
Why Reliable Hardware and Backup Solutions Matter
Technical glitches can throw even the best-laid trading plans into chaos. With Break and Retest strategies, timing is everything, and unreliable hardware or connectivity issues can lead to missed opportunities or unmanageable positions.
Failures like computer freezes or internet outages can cause you to miss critical entries or exits, turning a well-planned trade into a costly mistake. For instance, if your system crashes at a key moment, you could lose the chance to act or end up stuck in a bad position.
To avoid this, invest in reliable trading hardware and backup systems. Redundancy is key – have backups for your internet connection, power supply, computer systems, data storage, and market data feeds.
Using a VPS (Virtual Private Server) is another smart move. Services like those offered by DayTradingComputers ensure nearly 100% uptime, with robust infrastructure designed for 24/7 reliability. Automatic backups also safeguard your trading data, strategies, and settings from hardware failures or cyber threats.
While the upfront cost of reliable hardware and backup systems might seem steep, it’s a small price to pay compared to the potential losses from technical failures. When risking 1–2% of your account per trade, a single missed exit due to a system crash could cost far more than investing in proper equipment.
Key Takeaways for Day Traders
The Break and Retest strategy is a straightforward yet effective approach for day traders aiming to capitalize on key market breakouts. By waiting for a retest of critical levels before entering a trade, this method helps transform uncertain setups into higher-probability opportunities.
One of the biggest advantages of this strategy is its adaptability – it works well across forex, stocks, and commodities. The retest not only confirms genuine breakouts but also helps filter out false signals, making it a valuable tool in any trader’s arsenal.
Risk management plays a central role in the strategy’s success. For consistent results, traders should limit their risk to 1–2% of their account per trade and position stop-loss orders just beyond the retested level. Combining this with a risk–reward ratio of at least 1:2 or 1:3 ensures long-term profitability, even if some trades don’t go as planned.
Having a reliable trading setup is equally important. High-performance systems, like those offered by DayTradingComputers, are essential for executing trades smoothly. In a fast-moving market, technical glitches can mean the difference between a successful trade and a missed opportunity.
Patience is another key ingredient. Waiting for the market to clearly confirm its direction before entering a trade is what makes this strategy so effective. By sticking to these principles, traders can refine their approach and build a more disciplined trading routine.
When executed with proper risk control and supported by reliable trading tools, the Break and Retest strategy offers a structured way to capture market movements and work toward consistent trading success.
FAQs
What’s the best way to identify support and resistance levels for the Break and Retest strategy?
To pinpoint support and resistance levels effectively, begin by examining higher timeframes like the 1-hour chart. Look for key price zones where the market has either reversed direction or paused. Tools such as trendlines, moving averages, Fibonacci retracement levels, and pivot points can help you identify these areas with more precision.
Pay special attention to horizontal levels where the price has historically bounced or consolidated. These zones often signal strong potential entry or exit points when using the Break and Retest strategy. By combining these tools, you can better confirm critical levels and make more informed decisions during intraday trading.
What are some effective ways to manage risk when using the Break and Retest strategy in day trading?
Managing risk is a key part of successfully using the Break and Retest strategy. A good starting point is to stick to the 1% rule – this means you should never risk more than 1% of your total account balance on a single trade. It’s a simple yet effective way to safeguard your capital during unpredictable market shifts.
Another essential step is placing stop-loss orders just beyond the retest level. This acts as a safety net, limiting your losses if the market turns against your position. Also, make sure your position size aligns with both your account size and your personal risk tolerance. This approach keeps your trading consistent and manageable.
Lastly, steer clear of jumping back into trading right after a big loss. Emotional decisions often lead to mistakes. Instead, take a moment to pause, reassess the market calmly, and stick to your strategy with a clear mind.
What technical indicators can help improve the Break and Retest strategy in day trading?
To improve the accuracy and reliability of the Break and Retest strategy, traders often rely on a handful of technical indicators. The Relative Strength Index (RSI) is a popular choice, as it highlights overbought or oversold conditions, helping traders fine-tune their entry and exit points. Moving Averages are another essential tool, making it easier to identify trends and locate dynamic support or resistance levels. For gauging price volatility and spotting potential reversals, Bollinger Bands and candlestick patterns are particularly useful, offering a deeper understanding of market movements.
When these tools are integrated into a structured Break and Retest strategy, they can provide traders with a more informed perspective, ultimately improving decision-making and boosting the chances of profitable trades.