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Break and Retest Strategy

The Core Concept​

This strategy is built off of the concept that the nature of the market is to be efficient. It is always looking to retest and rebalance and to faciliate trades.

So the strategy is based off of the market looking to mitigate large inefficiencies from strong momentum candles, entering and joining the move back down (or up).

Context: Big Momentum Moves Amongst Wicky Movement​

The whole aim is to look for markets that are fairly efficient. Constant up and down, even if there is a clear direction or trend. In these conditions, every (retail) participant gets a turn. The market is moving slowly and efficiently enough whereby its doing a good job of facilitating trades.

But at points where there is such a quick, massive move, in the momentum, so trades get blurred past. There are many trades unfulfilled in that massive body of the momentum candle. And as the job the market is to facilitate trades, it will eventually find its way back there to scoop of those trades before continuing back in its prior direction.

The Process​

Step 1: Look for that big push​

Look for markets with no dominant buyer or seller strength, and then, out of nowhere, a massive push in either direction that contradicts the prior choppy market conditions.

But it must be unmitigated. Price must not have returned to last point at which price was tested - even on the inverse side of the momentum move.

The the momentum move must break structure, either a break of structure or (the preferred) change of character. And if price moves back into the zone, it must be a slow trickle with less momentum and inertia than the momentum move in question.

Step 2: Mark it All Out​

Mark out and highlight any and everything you can see. This builds a story of what has happened and what may happen, to trade alongside.

  • The ineffecient price range of the momentum move where there are trades unfulfilled
  • Any key levels of support or resistance such as double/triple tops or bottoms or any swing highs/lows.
  • The break of structure or change of character
  • If there any indecision candles

Step 3: Understand the Story​

Using the annotations, paint the full picture and understand the story the market is telling.

  • Who is in control? Buyers or sellers?
  • Are they still in control? How much longer?
  • Is this trend continuation or reversal?
  • Where was price last tested and efficient?

The Setup​

The Entry​

The previous swing on the inverse side of the monentum move. ie. the change of character or break of structure level.

The Stop Loss​

Just beyond the boundary of the inefficiency level of the momentum move, maybe extending to the wick at discretion. This is because the trade is the retest and rebalancing, so price isn't expected to go back to before the momentum move.

The Take Profit​

The target is a price magnet on the other end. This can be a

  • swing high or low
  • key support or resistance level

But the point is there is a definitive and conservative level at which there is reason to believe that price "should" return there, for whatever reason.

Key Notes​

Momentum doesn't have to be one single candle​

Sometime the momentum move wont be a single candle. It will be a few large candles all in the same direction in succession with very little wicks. This just means the push was over a longer period.