Intraday Breakout-Retest Strategy
The intraday breakout-retest strategy is one of the most reliable day trading approaches. It waits for price to break through a key level, then enters only after price retests that level as new support or resistance. This two-step confirmation process filters out many false breakouts and gives traders a clearly defined entry, stop-loss, and target.
What Is the Breakout-Retest Strategy?
A breakout occurs when price moves decisively beyond a well-defined support or resistance level. However, entering immediately on the breakout is risky because many breakouts fail and reverse. The breakout-retest approach solves this by requiring a second step: after the breakout, you wait for price to pull back and retest the broken level.
The logic is rooted in market structure. When resistance breaks, it often becomes support (and vice versa). The retest confirms this role flip. If price bounces off the retested level, it validates the breakout and gives you a low-risk entry close to the level, with your stop-loss just on the other side.
This strategy works across all liquid markets including forex pairs, indices, commodities, and crypto. It is best suited to the London and New York sessions when volume and volatility are highest, giving breakouts the momentum they need to follow through.
How to Enter the Trade
1. Identify a Key Level
Look for a horizontal support or resistance level that has been tested at least twice. The more times price has respected the level, the more significant the breakout will be when it occurs. Use the 15-minute or 1-hour chart to identify levels.
2. Wait for the Breakout
The breakout candle should close decisively beyond the level — not just wick through it. A strong breakout candle has a full body beyond the level with above-average volume. Avoid breakouts during low-volume periods like the Asian session for forex.
3. Wait for the Retest
After the breakout, be patient. Price often pulls back to retest the broken level within 1-4 candles. Look for price to touch or get very close to the level, then show rejection (a wick or reversal candle). This is your entry signal.
4. Enter on Confirmation
Enter when a candle closes in the direction of the breakout after touching the retested level. For a bullish breakout-retest, enter when a bullish candle closes above the retested support. Use a market order or a limit order at the level.
How to Manage and Exit
Stop-Loss Placement
Place your stop-loss just beyond the retested level on the opposite side of your entry. For a bullish setup, the stop goes a few pips below the retested support. This keeps risk tight — typically 10-25 pips on major forex pairs.
Take-Profit Target
Measure the distance from the level to the high (or low) of the breakout move. Project this distance from the retest entry point. This gives you a 1:1 target. For a better risk-reward, use the next significant resistance or support level as your target, aiming for at least 1:2.
Trail Your Stop
Once price moves 1:1 in your favour, move your stop to breakeven. If momentum continues, trail your stop below each new higher low (for longs) to lock in profits while giving the trade room to run.
Example: EUR/USD Breakout-Retest
Setup: EUR/USD has been rejected at 1.0950 resistance three times over two days. During the London session, a strong bullish candle closes at 1.0962, breaking above resistance with increased volume.
Retest: Over the next 45 minutes, price pulls back to 1.0952, wicking down to 1.0948 before printing a bullish engulfing candle that closes at 1.0960.
Entry: Buy at 1.0960 on the close of the confirmation candle.
Stop-loss: 1.0940 (below the retested level, 20-pip risk).
Take-profit: 1.1000 (next resistance, 40-pip target, 1:2 risk-reward).
Outcome: Price reaches 1.1000 during the New York session. Profit: 40 pips at 1:2 risk-reward.
Pros and Cons
Advantages
- ✓ Clear entry point with defined risk — stop-loss placement is obvious
- ✓ Filters out many false breakouts by requiring confirmation
- ✓ Works across all liquid markets and timeframes
- ✓ Good risk-reward ratio (typically 1:2 or better)
- ✓ Simple rules that suit disciplined traders
Disadvantages
- ✗ Not every breakout retests — you may miss strong momentum moves
- ✗ Requires patience to wait for the retest, which can take hours
- ✗ In choppy markets, the retest may fail (price breaks back through)
- ✗ Needs practice to distinguish genuine retests from continued pullbacks
- ✗ Less effective during low-volatility sessions
Quick Checklist
- ☐ Key level identified with at least 2 prior tests
- ☐ Breakout candle closed decisively beyond the level (not just a wick)
- ☐ Volume confirms the breakout (above average)
- ☐ Price has pulled back to retest the broken level
- ☐ Rejection candle or pattern visible at the retested level
- ☐ Stop-loss placed beyond the retested level
- ☐ Risk-reward ratio is at least 1:2
- ☐ No major news events imminent that could cause erratic moves
Frequently Asked Questions
How long should I wait for the retest?
What if the retest fails and price breaks back through the level?
Can I use this strategy on higher timeframes?
Which markets work best for breakout-retests?
Related Day Trading Strategies
Master Day Trading With a Personalized Course
Our free assessment finds your exact skill level, then builds a custom 10-chapter curriculum covering day trading strategies in context.
Start Free Course