Retests

By @CryptoCred
Outline

● Disclaimer
● General Remarks
● Basic Premise: Breaks and Retests
● Dilemma Outline: Trade Guarantee Versus Risk:Reward
● Gauging a Breakout
● Immediate Versus Rounded Retest
● Considerations
○ False Dilemma
○ Precedent
○ Risk:Reward
○ Hidden Retests
○ Context
● Conclusion
Disclaimer

Neither this presentation, nor anything on my Twitter, Telegram, or any other medium/mode of
communication, including private correspondence, constitute financial advice.

I am not a financial advisor and hold no formal qualifications in this area.

Trade entirely at your own risk.

This is for entertainment purposes only.

General Remarks

● No one-size-fits-all
○ Best results will come from rigorous testing and contextual decisions
● Framework applicable to a wide range of systems
○ PA, Cloud, MA, Trendlines etc. → any system which can identify breaks of structure
● Missed trades are normal
○ Breakouts vary, retests vary etc. → can’t catch them all
● Embrace the uncertainty
○ Confirmation quickly becomes ‘copefirmation’
○ “How do I know if X is going to hold?” → You can’t!
■ Framework for making higher probability bets
● “The market needs to retest X to confirm it as support/resistance!”
○ No.
○ The significant event is the break of structure
● You do not have to trade every single breakout/breakdown
Basic Premise: Breaks and Retests

● Losing support is typically bearish

○ The breakdown and/or the retest of the broken support may be a chance to sell
● Breaking resistance is typically bullish
○ The breakout and/or retest of the broken resistance may be a chance to buy
● This video addresses how, when, and whether to trade such occurrences
Dilemma Outline: Trade Guarantee Versus
Risk:Reward
● Often a trade-off between R:R and certainty (or confirmation)
○ Less certainty often offers superior R:R
○ More certainty often offers inferior R:R
○ Basic example: trading at a level versus trading away from a level
● Retest dilemma
○ Wait for retest
■ Superior R:R
■ Trade not guaranteed
○ Trade the breakout
■ Trade guaranteed
■ Inferior R:R
Gauging a Breakout

● Video relies on the idea that the breakout/breakdown has taken place
○ Seeking to answer how/when/whether to trade it
● These principles become inapplicable if you’re buying a failed breakout or selling a failed
breakdown
○ In effect, you end up buying resistance/selling support
● Quick but imperfect remedy is aligning time frames
○ Daily structure requires daily close through it to be broken, H4 close for H4 structure, etc.
○ Watch time frames video
● Time frame traps
○ A low time frame ‘breakout’ at high time frame resistance can be just a wick
○ A low time frame ‘breakdown’ at high time frame support can be just a wick
● Try to be as certain as practically possible that a break in structure has actually taken place before
using these principles!
Immediate Versus Rounded Retest
● Definitions:
○ Immediate retest: trading at or near structure when it breaks
■ Trading the break itself
■ “X just broke, what’s my action here?”
○ Rounded retest: trading at or near structure after the break has played out
■ Trading a return to the break
■ “This was a big area that the market moved away from, what’s my action now that we’ve returned to it?”
● Considerations
○ Rounded retests offer an easier decision-making process given you’re not trading the break itself
○ Rounded retests tend to be clearer setups; the fact that a retest is rounded implies a meaningful break took place
○ Rounded retests typically give you more time to think, plan, and act
○ Similar balancing act
■ Trading the break more likely to guarantee a trade but higher chance of getting trapped (+ worse R:R)
■ Trading the retest less likely to guarantee a trade but lower chance of getting trapped (+ chance of no fill)
● Not a binary choice
○ Sometimes the break is very clear but the retest doesn’t happen or is very unattractive
○ Other times the opposite is true
○ Contextual considerations (later) will make this decision easier, but no rules against trading both sides
Consideration I: False Dilemma

● Basic premise: splitting position equally between the break and the retest i.e. you don’t have to
choose one over the other
○ E.g. Close above resistance → 50% position on the close, 50% in the form of a limit order at the level
● Benefit is a guaranteed trade even without a pullback, with full sizing if the market offers one
● Downside is that the trade is guaranteed to be suboptimal one way or another
○ If it pulls back, your average entry is worse than if you had waited for a retest (less space to manage
comfortably)
○ If it doesn’t pull back, you’ve only got half size on the trade
● Disclosure: I don’t trade like this
○ I prefer establishing positions with conviction i.e. either the break is so significant that I want exposure
ASAP, or I don’t mind missing the move and it’s only attractive back at structure (with optimal R:R)
Consideration II: Precedent

● Basic premise: does the instrument you’re trading (in its current trend) offer regular
retests?
○ Yes → Great, wait for the retest
○ No → Don’t expect it
● It’s mostly as straightforward as it seems
● Exception: sometimes this behaviour shifts as a trend becomes more/less aggressive
○ E.g. retests taking place at the early stage of a trend but then it goes parabolic and retests
become rare / vice versa
○ Suggestion: look at more recent price action for context
Consideration III: Risk:Reward
● Basic premise 1: waiting for a retest/pullback may be necessary where entering on the break presents inactionable R:R
○ Closer to structure = usually better R:R
○ Further from structure = usually worse R:R
■ Sometimes the break is so big that a follow up entry doesn’t make sense
● Reframing:
○ What move am I trying to capture?
○ How much of that space has already played out as a result of the break?
■ If the break has already taken your idea (mostly) to target, the R:R to chase it without a retest often isn’t there
● Basic premise 2: the precision of your entry is inversely correlated with the size of the move you’re trying to capture
○ If you’re trading an intraday range, there’s less to capture so your entry must be more precise
■ Frequently occurs, selectivity with entry warranted
○ If you’re trading a high time frame swing, there’s more to capture so your entry can be less precise
■ Occurs less frequently, can afford to be less selective with entry
● Basic premise 2.1: the precision of your entry is inversely correlated with the significance of the idea/level/structure you’re trading
○ Not all setups are made equal
○ “If X breaks, the entire market is going to shit 20%” → does it really matter whether your entry is 1% or 3% away from X?
○ Opportunity cost from missing a rare setup just because the entry wasn’t perfect can suck e.g. BTC/USD 6k reclaim, 20k breakout, etc.
Consideration IV: Hidden Retests

● Basic premise: Fast-moving, high time frame breaks sometimes offer retests on lower time frames,
which aren’t always visible on high time frames
○ Example: daily time frame looks like the market just mooned after breaking a level, but lower time frames
show a retest at the break before continuation
● In order to capitalise on this, consider leaving limit orders at the broken structure and/or monitoring
it on lower time frames
● These retests are often short-lived and happen very quickly; exactly what you want to see when
there’s real imbalance in the market with one side rolling over
● Generally speaking, the more time price spends stuck at/near an ‘important’ level after breaking it,
the more likely the break is to fail
○ Big level → big participation → one side gets rinsed
■ If your interpretation is correct, the market should move quickly as the losers cut their trades, get
liquidated etc.
Consideration V: Context
● As a reminder, the basic framework we’ve followed thus far:
○ Losing support is typically bearish; the breakdown and/or the retest of the broken support may be a chance to sell
○ Breaking resistance is typically bullish; the breakout and/or retest of the broken resistance may be a chance to buy
○ This isn’t always applicable!
● Rangebound environment
○ In a range, resistance is for selling and support is for buying
○ Price will often poke at/through the extremes before reverting to the mean
○ In these cases, the probability of a failed breakdown at support/failed breakout at resistance is much higher
● Strong underlying trend and/or high time frame structure
○ In a bull trend/at support, failed breakdown setups are likely
○ In a bear trend/at resistance, failed breakout setups are likely
○ Even if there’s follow through, hunting a buy at reclaimed support/sell back below resistance is more attractive than chasing the counter-trend move
● Rounded retest context
○ A lot can happen between a break and the subsequent retest
■ In terms of time but also structure
○ E.g. H1 support breaks, reaches D1 support, and comes back to H1 support turned resistance
■ Breakdown target reached + fading daily bounce with lower time frame structure → lower probability trade
○ Just like not all levels are equal, contexts vary as well
■ Where is price coming from?
■ Do I want to stand in front of it?
■ This one comes with experience!
Conclusion

● There’s no single answer or formula

○ Breakouts vary, retests vary, contexts vary etc.
● As with all my content, goal is to arm you with tools to make well-reasoned decisions
within a replicable and intelligent framework
● Don’t be complacent where a good entry matters
● Don’t be greedy where a pristine entry isn’t required
● As a discretionary trader, context is not only your friend; it’s likely your edge
● [Generic wisdom about no replacement for screen time, DYOR, etc.]
Content

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