Retesting Levels: Confirmation of Breakouts or Rebounds
Introduction
The topic of retesting support and resistance levels is a key element of technical analysis, directly related to search intents surrounding entry strategies, validation of breakouts, rebounds, risk management, and market psychology. This article delves into both basic concepts and advanced techniques that enable traders in the Russian market to accurately identify entry moments and minimize the likelihood of false signals.
Throughout the article, real historical examples of quotations will be provided, classic situations will be analyzed, and scenarios will be explored in which a retest transforms from an ordinary technical signal into a powerful catalyst for price movement. Additionally, we will discuss psychological aspects – how to avoid market maker traps and manage volume to evade “stop hunts.”
1. Concepts of Retest and Key Levels
1.1 What is a Level Retest?
A retest is not merely the return of price to a previously breached or bounced barrier, but a standalone signal of the market's readiness to continue movement in the direction of the breakout or rebound. The main objective of a retest is to confirm that the level has indeed changed its role: resistance turns into support, and support becomes resistance.
Without a retest, a trader operates under conditions of uncertainty, as it remains unclear whether the market possesses the strength to maintain movement in the original direction. The retest serves to "prove" the validity of the breakout or rebound, helping to filter out false breakouts and reduce the emotional factor in decision-making.
1.2 The Role of Retests in Level Confirmation
The price may breach a level, but without a retest, the trader is left in doubt: are there pending stop orders behind this, where is liquidity concentrated, are there market maker traps? Only by returning to the level and executing a quality retest does the price "clean" the order book, revealing its true direction.
A retest acts as a kind of exam for a level: if the market does not return to it within several candles after the breakout, the movement may not be strong enough, and entering based on such a signal becomes risky.
2. Confirmation Strategies for Breakouts
2.1 Candlestick Patterns during Retests
When retesting, characteristic candlestick patterns often emerge: reversal pin bars with long tails, bearish or bullish engulfing patterns, inside bars. Their key task is to indicate that after returning to the level, market participants are once again ready to push the price in the direction of the breakout.
For instance, after a breakout of the resistance level at 1.2000, the price returns and forms a bullish pin bar. A close above the level – right at the edge of the pin bar's tail – serves as a strong signal for continued upward movement. Such patterns are particularly reliable when confirmed by volume or divergences in indicators.
2.2 Volume Filtering
Volume is one of the key filters when validating breakouts. High volume during the retest indicates that new positions are being confidently opened and that the level's liquidity is in demand. Conversely, if volume decreases, there is a risk of a false breakout: the price may simply "run through" the barrier, play with stop orders, and return.
The ideal situation occurs when volume increases during the breakout and remains at or even increases during the retest—this is direct confirmation of the strength of the movement. An additional criterion is the relative comparison to the average daily volume: a retest with metrics over 70-80% of the average demonstrates high reliability.
2.3 Multi-Timeframe Validation
Confirmation of a breakout on a higher timeframe (H4 and above) reduces the risk of false signals on lower charts. For example, if on H4 a level is breached and held after a retest, and on M15-H1 additional entry signals form, the likelihood of trend continuation significantly increases.
Practice shows that information from higher timeframes creates a "background" against which signals from lower timeframes hold more significance. Trading based on aligned data from multiple charts allows for the avoidance of noise movements and enhances entry accuracy.
2.4 False Breakouts and Their Recognition
A false breakout is characterized by a sharp yet brief exit beyond a level without subsequent retesting in the desired direction. Key signs include:
- decreasing volume during the exit beyond the level;
- an immediate large-size opposite candle;
- absence of confirmation on higher timeframes.
Identifying false breakouts enables timely closing of losing positions and waiting for more reliable signals. An additional technique is to observe price behavior after the closure of bars: if it consistently returns within the range, the breakout can be considered invalid.
3. Trading Rebounds after a Retest
3.1 Entry Based on Reversal Patterns
During a rebound, the price touches a level and forms a reversal model: a pin bar, inside bar, double bottom, or top. The trader opens a position in the direction of the rebound, placing a stop-loss beyond the extreme of the candle.
A classic example is a pin bar with a long tail indicating a rebound from support. The formation confirms the participation of major players pushing the price back after testing the level.
3.2 Target Levels and Profit Taking
The first target is the nearest significant level in the opposite direction. The second is an extended price boundary calculated based on volatility or previous extremes. This approach allows for securing part of the position early and keeping the remainder for a larger movement.
Incremental profit-taking reduces stress and psychological noise and allows for locking in gains even if the market sharply reverses after reaching the next target.
4. Indicators and Volume for Signal Filtering
4.1 RSI and MACD during Retests
RSI helps to determine overbought or oversold zones during a retest: it is safer to enter if the indicator is not at extremes. MACD divergence during a retest indicates a weakening of the primary trend and potential reversal.
Checking indicators during the retest helps to avoid "edge" entries – when the market is already close to reversal or deceleration of momentum. The combination of signals from multiple indicators enhances the strategy's reliability.
4.2 VWAP and OBV
VWAP serves as dynamic support or resistance, particularly useful intraday. OBV shows whether price increases align with the influx of volume: during breakout confirmation, OBV should rise, while during a rebound, it should decrease.
Additionally, the CVD (Cumulative Volume Delta) indicator can be used to analyze the balance of buyers and sellers during a retest—providing insights into who controls the market's movement.
5. Risk Management and Position Sizing
5.1 Stop-Loss during Retests
Stop-losses are set beyond the extreme of the retest bar or at a distance equal to 1-1.5 ATR. This approach takes into account volatility and reduces the likelihood of being "stopped out" due to random movements.
At times, it may be appropriate to use a "trailing" stop-loss, moving it to break-even after reaching the first target or when a favorable signal forms on a lower timeframe.
5.2 Position Size Calculation
Position size is determined by acceptable risk (typically 1-2% of the deposit) and the distance to the stop-loss. This calculation ensures the stability of overall portfolio risk with any entry.
A simple example: deposit of 1000 USD, risk of 1.5%, stop-loss of 50 pips—the position size is calculated so that a 50-pip loss corresponds to 15 USD, or 0.3 lots in a standard contract.
6. Market Psychology and Liquidity
6.1 Market Maker Traps
Stop orders of retail traders often trigger before and after a retest—market makers “pull” the price into the liquidity zone, creating false signals. Understanding these traps helps traders avoid emotional "traps" and trade according to strategy.
A useful technique is to monitor stop order clusters through specialized indicators or DOM (Depth of Market) data. These tools allow visibility into where major order aggregations are located and anticipate where price may move to collect liquidity.
6.2 Participant Behavior during Retests
Traders lock in profits after a breakout, open new positions, average down during pullbacks, or close positions at stop-losses. All these actions create volatility around the level: a proficient trader takes this "noise" into account and searches for signals within it.
Studying volume and speed of candle movements during a retest helps to understand who dominates—the major players or retail traders. If significant volume corresponds to the opposite movement, this may indicate a "stop hunt" preceding a move in the original direction.
Conclusion
Focusing on clear confirmation signals for breakouts and rebounds, conducting multi-timeframe analysis, correctly utilizing volume and indicators, adhering to disciplined risk management, and understanding market psychology—all these elements constitute a reliable retest trading strategy. The application of the described techniques helps to filter out the "noise," enhance entry precision, and increase profitability while minimizing losses.
In conclusion, it is important to note that even the most refined strategies require adaptation to specific market conditions and instruments. Regular analysis of trades, maintaining a journal, and adjusting approaches enable traders to continuously improve and operate effectively across all market phases.
