7.4 Strategy 4: The Break and Retest

One of the most reliable and fundamentally sound strategies in all of trading is the Break and Retest. It relies entirely on market structure and psychology. It doesn't use complex indicators; it just uses plain, naked price action.

The Core Philosophy: Ceilings into Floors

Imagine a reinforced concrete ceiling. Every time the market tries to jump up, it hits its head on the concrete and falls back down. We call this 'Resistance'.

Eventually, the buyers gather enough momentum to smash completely through the concrete ceiling. But what happens next is the secret to this strategy: Once that ceiling is broken, it is no longer a ceiling. If you are standing on top of it, it has now become your new floor (Support).

Step 1: Identifying the Concrete Ceiling

Timeframe: 1-Hour (1H) or 4-Hour (4H) Timeframe.

Look for a very clear, horizontal zone where the price has been rejected at least twice. Take your rectangle tool and draw a thick zone across these rejection points. This is your Resistance Zone.

Step 2: The Shatter (The Breakout)

You are waiting for a massive, aggressive momentum candle to violently push completely through your Resistance Zone.

CRITICAL RULE: Just like the London Breakout, the candle MUST fully close above the zone. If it just pokes a wick through and closes back below, that is a fake-out, and the ceiling is still intact.

Step 3: The Retest (The Sniper Entry)

When the massive green candle breaks through, amateurs suffer from FOMO and instantly buy at the very top. What usually happens next? The market pulls back, they go instantly into the negative, they panic, and they close the trade at a loss.

You, however, will use patience. You wait for the price to drop all the way back down to touch the top of your original Resistance Zone. That old ceiling is now your new Support floor. This is your exact entry point. You enter a BUY trade the exact moment it touches the new floor.

Step 4: Stop Loss and Take Profit

The Stop Loss: Because you entered right on the new floor, your Stop Loss goes safely underneath the floor zone. If the price breaks back down through the floor, the breakout was a fake, and you are protected by a tight 1% loss.

The Take Profit: To achieve your 1:2 Risk-to-Reward ratio, look to the left of the chart to find the next major level of historical resistance, or use a 1:2 R:R mechanical target (e.g., risking 20 pips to make 40 pips).

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