If you have been a reader of this site for more than a day or two, you have undoubtedly seen me write, “wait for a retest” in the commentary. If you haven’t seen this yet, take a look at any of the recent setups and you are sure to find it there.
What may not be so apparent is the importance of waiting for a retest. What exactly does it represent and why is it so important?
I have been receiving a lot of similar questions recently so I decided to dedicate a lesson to the topic of retests. By the time you finish reading this lesson you will understand the significance of retests and why they need to be a critical part of your trading if you wish to succeed.
But before we get into the details it’s important that you understand what a retest is as well as the various ways it can occur.
What is a Retest in Forex?
Retests in the Forex market come in all shapes and sizes. They can come after a market breaks a key horizontal level of support or resistance or a breakout from a wedge pattern.
Regardless of how or where the retest occurs, the characteristics are the same. The image below illustrates a few of the various ways retests can occur.
As you can see from the image above, retests can occur on a variety of price action patterns. In fact, I can’t think of a single pattern that doesn’t prompt a retest more often than not.
But seeing an image of one or even watching one as it forms on your chart doesn’t tell the whole story. You have to know why it happens in order to fully understand the importance.
Why Market Retests Happen
Start thinking of retests as a market’s way of “resetting” itself. These resets are needed as the balance between buyers and sellers is in constant flux. This ever-changing balance is what creates swing highs and swing lows.
It goes without saying that whenever you buy or sell you are looking for a move in the intended direction. But in order for the market to do that, it needs a fresh set of buyers or sellers. Otherwise, you will find yourself buying at the top and selling at the bottom.
Flushing out the weak hands
The term, “weak hands” refers to any group of traders (usually retail) who are not comfortable holding a position through increased volatility for the opportunity to make larger gains. These are usually the traders who are too risk-averse and therefore get stopped out prematurely before a larger move ever gets going.
Of course, there are also those who trade the lower time frames and therefore aren’t looking for the larger opportunity. These traders are completely happy to take their profits early and often.
Either way, both scenarios create swing highs and lows. However, there is an underlying dynamic that isn’t immediately apparent.
To explain this dynamic further, let’s take a look at an example. The GBPCAD 4 hour chart below shows the pattern in focus.
As you can see, the chart above shows a descending channel that intersected with a long-term support level. This support area eventually led to a break of channel resistance which is highlighted above.
Now let’s take a closer look at the breakout and retest to identify the activity between buyers and sellers.
Don’t worry, the chart above isn’t nearly as confusing as it may seem at first glance. The first thing to note is that those who bought in from Wave A and Wave B who are still holding want to book at least some profit at the second swing high after the breakout.
This selling drives the market lower which eventually produces a retest. Those who bought as soon as the market confirmed the breakout are already at a loss. This is why it’s so important to always wait to flush out the weak hands.
However, the most important point to take away from the chart above is that Wave C is where we want to buy. This area represents the strongest group of buyers and therefore signals the greatest potential for a sustained move higher.
In essence, this chart illustrates the basic ebb and flow of a market which is influenced by the balance between buyers and sellers. That’s really what waiting for a retest is all about. We want to wait for the market to flush out the weak hands before we put any capital at risk.
Wait for Confirming Price Action
It isn’t enough to simply see the market touch a broken level as new support or resistance. And if you think about it, that doesn’t actually qualify as a retest.
If we separate the second half of the term you’ll see why. We are looking for a re”test”, not a re”touch”. So when the market revisits a level after breaking it, we want to see it test that level as new support or resistance. The confirming price action is how we evaluate that test.
What is confirming price action, you ask?
Put simply, it’s either a bullish or bearish pin bar at the new level of support or resistance. The EURGBP daily chart below is a great example of how we can use a price action signal to help confirm a breakout.
Notice how EURGBP formed a bearish pin bar several days after breaking wedge support. Those who entered on the first “retouch” after the break would have been stopped out. Yet those who remained patient and waited for confirming price action would have ended up with a 4R trade if using a 50% entry.
We actually traded this setup inside the Daily Price Action member’s area for a healthy 4R profit (8% if risking 2%). Not a bad return for just five days of trading.
At this point, you may be wondering what happens if the market doesn’t retest the broken level. My rule for that situation is simple – I pass on the opportunity and look for something more favorable.
There aren’t many guarantees I can make to a Forex trader. I can’t guarantee profits on any particular setup just as I can’t guarantee your success as a trader. But one thing I can guarantee is that there will always be more setups tomorrow, so never be in a hurry to risk your trading capital today.
Placing Your Stop Loss
Using confirming price action on a retest also provides you with a great place to “hide” your stop loss. As you may well know, you always want to place your stop loss at a level where the setup is invalidated if hit.
Waiting for confirming price action gives you the perfect opportunity to do just that. When a bullish or bearish pin bar forms on a retest, you can use the tail of the pin bar as your invalidation level. In other words, if the market moves past the tail the setup is no longer valid.
Let’s take a look at an example of a breakout and retest that occurred on the EURAUD daily time frame. The chart below shows the pattern in focus.
As you can see from the chart above, we have a wedge pattern that formed on the daily chart over the course of several months. There were three touches on both support and resistance which gives us a tradable pattern.
Also, notice the bearish pin bar that formed after retesting former wedge support as new resistance. Let’s move in and take a closer look to see where we could have placed our stop loss for this setup.
The chart above shows the complete picture. Notice how the bearish pin bar gave us a place to hide our stop loss. Without the tail of this pin bar, it would have been difficult to determine an appropriate level at which to place our stop.
Also, note how the 50% entry gave us a much more favorable risk to reward ratio rather than waiting for the price to break beyond the nose of the pin bar. All in all, this made for a textbook price action setup.
Waiting Teaches Patience
From a non-technical perspective, the practice of waiting for a retest teaches you patience as a Forex trader. It does this by forcing you to wait for a favorable entry rather than simply entering at the first available opportunity.
If you get yourself in the habit of always waiting for the retest, it will soon become second nature. As it becomes second nature you will begin to find that you are less anxious about what the market might do and more focused on what the market is doing.
Patience is arguably the most important quality you can have as a Forex trader and one that will surely have a positive impact on your trading. And teaching yourself to always wait for a retest is a great way to develop that quality.
Whether you are trading a key horizontal level, wedge pattern or channel, it’s important to always wait for a retest of the broken level. This involves waiting for the retest as well as confirming price action before putting any capital at risk.
By waiting for a retest you are essentially waiting for any weak hands to exit the market before putting on a position. This provides you with a stronger foundation from which to buy or sell which leads to a greater probability of a successful outcome.
Above all else, waiting for the market to produce a favorable setup will teach you patience. This alone will have a huge impact on your trading and will put you one step closer to becoming consistently profitable.
Do you currently wait for a retest when trading breakouts?
Leave your comment, question or general feedback below.
Ha, before I joined DPA I was always the one getting shaken out of the market! Waiting for the re-test makes all the difference. Thanks once again, Justin.
Love to hear that! A little bit of patience really does make all the difference in the world.
I like your statement “But one thing I can guarantee is that there will always be more setups tomorrow, so never be in a hurry to risk your trading capital today”
I’m glad you liked it. It’s a good sentiment to keep in mind.
Namaste JN 🙂
Thanks for sharing lesson on retest, now some of the doubts are cleared……
You’re welcome. I’m glad it cleared things up for you. 🙂
Mainly we look for bullish or bearish pin bar on retest ….or is there anything else we should look as a confirming signal??? what u say???
NaMaStE… 🙂 🙂
That really depends on the setup but there are other things you can look for which are generally discussed inside the member’s area.
Invaluable information as usual, and an inspiration.
You’re very welcome my friend. I’m glad you enjoyed the lesson. 🙂
Hi Justin, This article is excellent. Thank you…
You’re welcome. I’m glad you found the article helpful. 🙂
Have a great weekend.
i always thinking..how if it doesn’t retest(sometimes it really happen)..it was frustrating after u wait for long time..price was breakout and there’s no retest!!!
That’s something you need to practice and test in your own account (waiting for a retest versus not waiting).
Finding success as a trader is all about finding what works best for you.
Thanks for the valuable lesson that you has put out. I have a question to ask you regarding the confirming price action setup after break out.
Let say we are on daily chart, the market broke the key level within I candle mean I day, right after the breaking candle form a nice continuation pin bar, let say the wick protrude the recently broken key level. Does this pin bar is tradeable without waiting for further retest price action signal?
Hope you can spend some time to reply my question
In the example you gave the pin bar becomes your confirming price action, thus you would not need to wait for further confirmation before considering an entry.
Huge ups ! Very nicely done thanks 🙂
You’re welcome. Glad I could help.
thank you for the time you took writing this article, i do think this is the trading style i want to adopt and that all of us should adopt as a matter of fact …that following sentence “what the market might do and more focused on what the market is doing.” is what has resonate for me…in term of the bullish and bearish pin you trading do you have a preference for the way it looks such as size etc… i see on the example you have provide you dont necessarily go directly for the trade one it reach the support or resistance and i see that youre waiting for the retest without having those a bullish or bearish pin would you trade using the same analysis or you would you look for something else… or you would advise stinking to this plan..wheter i like it or not the most profitable trade in term of trend usually have in common exactly what you ve mention
thank you again for your time
This was great and necessary advice, especially the pin bar and stop loss. I like the fact that you dwell on why and how questions. Thank you so much
Yes this is one thing i am going to have to work on, i have a habit of jumping into a trade after a breakout when i know i should wait for a retest.
I don’t understand 50% entry concept. I would want to enter on the following day which is lower than the 50% level
Waiting for retest is something Ive never done as a new trader, but will start. Thanks.
Your insight on trading is invaluable!! Thanks for sharing your knowledge!
I typically wait for retests on breakouts, retests after prior reversal signals/semi confirmed reversals, or retests following any rupture in prior sustained support and resistance levels (combined with FIB for added confirmation of these levels) thoughts?
thank you for this article, very good article
Thank you so much for sharing this, have never thought of price action before, now I do.
Hi I need an understanding of a confirmation candle pattern?
Thank You so much im a beginner an i learnt so much from you Mr Justin..Can you please teach me how to trade fundamental i have been searching all over for fundamental trading an no luck
hi would like to ask does a retest happen only once, and do you consider all other as forming new support or ressistance
No, a market can retest a level as many times as it needs to.
I’m newbie i never wait for retest of the broken level but thank to u i’ll start practice now….stay blessed
Sometimes but I will start waiting
Great article! It’s hugely important to distinguish the difference between a ‘re-touch’ and a ‘re-test’. A good forex trader will always wait to see how price reacts at a recently broken level. A re-test is an important factor in my strategy as it should be for everyone else.
When waiting for that retest, if it comes back and PASSES the retest line do you pass on that opportunity?
It depends on whether or not the market closes the day beyond the level in question. That’s why I’m always referencing the New York 5 pm EST close.
Hi Justin, I am very amazed as I am reading this passage, it’s 100% accurate to how I trade, it is what I also emphasize on my students, to always wait for a retest and if it doesn’t retests you do not cry over spilt milk. I am from South Africa and I would love to stay in touch with you.
Powerful as always
I sometimes wait for retests when trading, but what you taught me today enlightened me more about the importance of retests and also the difference between retouch and a retest. Also taught me patience, thank you very much sir.
Yes, I always wait for a retracement, which increases my chance of always being right with my trades
Superb blog! Do you have any helpful hints for aspiring writers?
I’m planning to start my own blog soon but I’m a little lost on everything.
Would you recommend starting with a free platform
like WordPress or go for a paid option? There are so many choices
out there that I’m totally overwhelmed .. Any recommendations?
Which name do you use in you tube channel, not waiting for retest was my great problem I blown many accounts but I hope now it over
Thanks for this useful article. The fact that there’s a retest, could it mean there’s a test prior to it?
Good day @Justin Bennett, what if the market doesn’t retest, I know that most of the time in daily time frame retest happens but what if it doesn’t , how can we go about it
Include me on mailing list
hello justin ,i just wanted to ask you if there is a breakout ,it will be always a retest ?
Sir, no this doesn;t happens in stocks. Sir retest happens but bullish pin bar does not forms. please help.
what if the retest doesnt occur and the trend has kept on going,remember you are still waiting ,pips are running
Tried trading for the last one year and I always end up losing all my profits.Need help please.Thanks
My weakness is being impatient driven by FOMO feeling. What is the best time frames to place a trade when the market shows a retest?
Many thanks Justin
hey bennett, thanks for this, pls i need to ask if a trade can retest twice?
Great elucidation Justin B. I’m glad I read through . I was enlightened. Hope to get more stuffs. Thanks
This is a great info. Thanks
Is this safe to place the stop above-below retest point ? I am looking at retesting as a retracement of the last impulse leg so the failure point for set up is the beginning of this leg ?
Thank you so much for this
I’m a Chart Pattern Trader and since i have been trading i have noticed that the retest doesn’t happen often so i wanted to find out more favorable way to trade those patterns. as i was doing my research i came across this site and it has given me better understanding i will always wait for a retest.
When would you enter that trade? If youd waited to see the pinbar form, how could you then enters at that 50% level as price would have already fallen?
Could you explain when to actually enter the trade.
Or you did enter on the close of that pinbar but the trade triggered two candles later, is that right?
Could you have placed the stoploss just above the trend line and a pending order just below the pin bar therefore letting the market confirm what it wants to do?