What Is Retest? Why Is It So Magical In Technical Analysis?

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What Is Retest? Why Is It So Magical In Technical Analysis?

Tiếng Việt

There is a mantra in trading like this: “Keep calm and wait for a Retest”. This is all that you need to do to make money in trading. So what is Retest? Why is it so magical? What are trading signals with high accuracy in the Retest trading strategy?

And if you have been searching for a safe but effective strategy to trade, I believe this article will satisfy you.

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What is Retest?

Retest is the process of retesting a price zone that the price has broken before.

I will explain the above definition through the 4 most popular price retest patterns ever encountered in the market. At the same time, I will give specific illustrations.

The price breaks out of the resistance and retests

The price breaks out of the resistance and rises. Then, it often tends to fall back slightly to retest the recently broken resistance level.

The price breaks out of the resistance and retests
The price breaks out of the resistance and retests

The price breaks out of the support and retests

The price breaks out of the support and falls. Then, it often tends to rebound slightly to retest the recently broken support level.

The price breaks out of the support and retests
The price breaks out of the support and retests

You can review the details in this article: What are support and resistance? What are Retest and Breakout?

The price crosses the peak in an uptrend and retests

When the market is in an uptrend, the price will continuously surpass the peaks, creating higher peaks after peaks. And when the price crosses a peak, it often has the habit of retesting the peak just crossed. And then, it rebounds.

The price crosses the peak in an uptrend and retests
The price crosses the peak in an uptrend and retests

The price falls out of the trough in a downtrend and retests

When the market enters a downtrend, the price will keep falling, creating lower troughs after troughs. And each time the price falls out of a trough, it will probably retest the trough just crossed. It will then continue to fall.

The price falls out of the trough in a downtrend and retests
The price falls out of the trough in a downtrend and retests

Actual image patterns of Retest trading strategy

Pattern 1: The price breaks out of the resistance and retests.

The price breaks out of the resistance
The price breaks out of the resistance

Pattern 2: The price breaks out of the support and retests.

The price breaks out of the support
The price breaks out of the support

Pattern 3: The price crosses the peak in an uptrend and retests.

Retest in an Uptrend
Retest in an Uptrend

Pattern 4: The price falls out of the trough in a downtrend and retests.

Retest in a Downtrend
Retest in a Downtrend

Two Retest cases in technical analysis

Case 1: Standard retest

A retest is considered standard when the price recovers the equilibrium in the retest zones. Candlestick patterns in this case are usually Doji or Pin Bar.

For example, the price surpassed resistance and increased. Then it fell back to retest the breakout resistance zone. The price created an equilibrium with a Doji candlestick and then rebounded. This is considered a standard Retest pattern.

Standard Retest case
Standard Retest case

Case 2: Fake retest

I will give you an example.

The price broke out of the support zone and fell. It then created a retest with a Bearish Pin Bar candlestick. The price did not decrease but increased sharply again.

In this case, the price created a fake retest point to deceive traders.

Fake Retest case
Fake Retest case

There are many more Retest patterns in the market. In most cases, prices will create a retest when they break out of the support/resistance or peak/trough. You can verify it yourself through price charts. Register a Demo account here:

Why is Retest a powerful trading strategy?

Now you probably understand what Retest is in the price chart. But the question is: Why is Retest a powerful and safe trading strategy?

  1. When the market breaks a certain level, it will start a new trend. Retest appears to reinforce that trend. And when you open orders at retest points, you are trading following the trend. This is why retest is safe.
Retest is a safe and powerful trading strategy
Retest is a safe and powerful trading strategy
  1. The secret of the retest strategy lies in the “concentration”. For example, When the price breaks out of the resistance zone and goes up, or the market is in an uptrend, you need to wait for the retest signal and focus on UP orders. On the contrary, when the price is in a downtrend, or it falls out of the support level and goes down, you just need to focus on DOWN orders.
  2. Remember: Retest only appears when the market starts a trend. Therefore, the retest signal does not appear much. This reduces the total number of your orders. And the fewer transactions you make, the better the effect is.

Combine Retest trading strategy with signal candlesticks

Within the scope of this article, I will show you how to combine retest with signal candlesticks.

Doji and Pin Bar candlestick patterns

These are the 2 candlestick patterns that frequently appear when the price retests. The reason is, in the retest zones, the price will create an equilibrium. Therefore, it creates 2 signal candlestick patterns of Doji and Pin Bar

Doji and Pin Bar candlestick patterns
Doji and Pin Bar candlestick patterns

For example,

The price surpassed resistance and rose. Then, it retested with a Bullish Pin Bar candlestick (Hammer candlestick). This was a bullish reversal signal. At this time, opening an UP order will be extremely safe.

Retest with a Pin Bar candlestick
Retest with a Pin Bar candlestick

The price retested the support just passed. It then established an equilibrium with the Doji candlestick pattern. This is a signal candle for you to open a DOWN order.

Retest with a Doji candlestick
Retest with a Doji candlestick

Reliable reversal candlestick pattern

The price retests and creates reliable reversal candlestick patterns. This is also considered a safe trading signal using the retest strategy.

The bullish reversal candlestick patterns which offer the highest accuracy are Morning StarBullish Engulfing, Tweezer Bottoms, and Three Inside Up.

The reliable bearish reversal candlestick patterns are Evening StarBearish Engulfing, Tweezer Tops, and Three Inside Down.

Reliable reversal candlestick pattern
Reliable reversal candlestick pattern

For example,

  • The price broke out of the resistance and went up. It then retested and created a bullish reversal candlestick pattern called Three Inside Up. So this is an extremely safe signal for you to open an UP order.
Retest and Three Inside Up candlestick pattern
Retest and Three Inside Up candlestick pattern
  • The price fell out of the support and went down. It then retested and created a bearish reversal candlestick pattern called Bearish Engulfing. This is a signal for you to open aDOWN order.
Retest and Bearish Engulfing reversal candlestick pattern
Retest and Bearish Engulfing reversal candlestick pattern

In conclusion

The majority of this article is theory only. Naturally, the reality when you trade with real money is a lot different. I will give many more detailed tutorial posts on how to enter a standard trade, how to manage capital, and detailed how to make money in binary options trading.

Market routines always repeat. And retest is considered the safest entry point to open a binary options order. Your job is waiting for a retest and opening orders.

Hopefully, through this article, you will understand more about what retest is. And you will see why it becomes a making-money tool in trading.

Love!

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