Mastering the Art of High-Probability Entries in Trending Markets
Momentum trading thrives on one powerful truth: price moves in waves, and those who catch the wave early ride the profit tide. Among the most trusted strategies used by seasoned momentum traders is the Breakout and Retest Strategy—a setup that combines technical precision with patience for optimal entries. In this blog post, we’ll dive deep into how this strategy works, why it’s so effective, and how you can incorporate it into your trading toolbox.
📌 What is a Breakout and Retest Strategy?
A breakout happens when the price makes a strong, momentum-driven move above a critical barrier or below a crucial support level. However, before making a trade, the retest portion of the method waits for the price to return (retest) to the breakout level and validate it as support or resistance.
This helps filter out false breakouts and provides a better risk-reward ratio.
🔍 Example:
Let’s say a stock has been trading between ₹100 and ₹110 for weeks. A breakout above ₹110 with high volume is your first signal. Instead of jumping in, you wait for the price to come back and “test” ₹110. If it holds as new support, that’s your entry point.
🧠 Why This Strategy Works So Well in Momentum Trading
Momentum trading is all about catching stocks when they’re moving rapidly in one direction. But many traders get trapped in fake breakouts—when price briefly breaks a level only to reverse sharply.
The retest adds confirmation. Here’s why it works:
- It attracts institutional money: Big players often wait for confirmation after breakout.
- It improves accuracy: Many fakeouts are filtered out by the retest.
- It offers better risk control: Your stop loss is tighter as you’re buying closer to support.
Internal Link: Learn more about Momentum Trading: What It Is and How It Works
📊 How to Identify a Breakout and Retest Setup
Follow these simple steps:
1. Identify Strong Support/Resistance Zones
Use horizontal lines, trendlines, or previous swing highs/lows. The clearer the level, the better.
2. Wait for a Clean Breakout
Look for a breakout with:
- Strong bullish/bearish candle
- Higher-than-average volume
- Ideally, breakouts on daily or 1-hour charts
3. Watch for the Retest
Once the breakout occurs:
- Wait for price to return to the breakout zone
- Look for bullish/bearish candlestick patterns (e.g., pin bars, bullish engulfing)
4. Enter with Confirmation
Once the price holds the level with a bullish signal, you can enter the trade.
💹 Breakout and Retest Entry Checklist
| ✅ Criteria | Description |
|---|---|
| Strong Support/Resistance | Clear level tested multiple times |
| Volume Confirmation | Above-average volume during breakout |
| Price Action Signal | Bullish engulfing / pin bar on retest |
| Market Context | Trending market or breakout from consolidation |
🛑 Where to Place Stop Loss and Target
- Stop Loss: Just below the retest candle’s low (for long trades) or above the retest candle’s high (for shorts)
- Target: Use previous resistance zones, Fibonacci extensions, or aim for minimum 1:2 or 1:3 RRR (risk-reward ratio)
Example:
If your stop is ₹5, target should be ₹10–₹15
🔄 Breakout and Retest Strategy in Action
📈 Stock Example: IRCTC
Let’s say IRCTC breaks ₹850 resistance with high volume. Instead of entering immediately, you wait. Two days later, it retests ₹850 with a bullish pin bar. That’s your cue. You enter at ₹855, place SL at ₹840, and target ₹900+. A clean 1:3 RRR setup.
🔧 Tools You Need
- Charting Platforms – TradingView, Chartink
- Volume Indicators – OBV, Volume Profile
- Candlestick Patterns – Learn to identify rejection wicks, engulfing patterns
- Support/Resistance Tools – Draw lines manually or use auto-S/R tools
🧬 Backtesting and Real-Time Practice
Before going live with your money:
- Backtest the setup on your preferred stocks (look for 100+ samples)
- Use Chartink or TradingView alerts for real-time breakout setups
- Try on paper trading accounts or with small capital initially
💥 Common Mistakes to Avoid
| 🚫 Mistake | ✅ What to Do Instead |
|---|---|
| Entering on breakout candle | Wait for retest & confirmation |
| Ignoring volume | Only trust breakouts with strong volume |
| Setting wide stop-loss | Use candle structure for tight SL |
| Overtrading | Stick to quality setups only |
🧰 Advanced Tips for Success
- Combine with moving averages (e.g., 20 EMA for trend confirmation)
- Use multi-timeframe analysis – Breakout on daily, confirmation on 1-hour
- Avoid news hours – Breakouts during news can be volatile
💎 Why This Strategy is Great for Part-Time Traders
If you’re not watching charts all day, the Breakout + Retest strategy is perfect because:
- You don’t need to chase moves
- You can set alerts for breakouts and analyze at EOD
- Entries are more relaxed and calculated
🔗 Other Strategies You Can Combine With
- NR4/Narrow Range Breakouts: Combine with tight consolidation setups
- Pullback Entries in strong trends using EMAs or Fibonacci
- Volume Breakouts with price-action filters
📚 Resources to Learn More
- TradingView’s Guide to Support & Resistance
- Babypips.com – Breakout Trading Basics
- Book: Technical Analysis of the Financial Markets by John Murphy
🧭 Final Thoughts
The Breakout and Retest Strategy isn’t just a trading technique—it’s a mindset. It teaches you discipline, confirmation, and patience—the three qualities every profitable momentum trader must master.
If you’ve been getting caught in fakeouts or entering too early, this strategy can be your game-changer.
Start applying it with a few test trades. Keep refining. And remember: trading isn’t about predicting; it’s about preparing.
If you found this article helpful. pls checkout this also How Small Budget SIPs Can Build Wealth: The ₹500 Monthly Strategy
