Hands-on: breakout and retest
Lesson 33 of 39 in the course “Crypto”. Free, with animations and a quiz.
Understand first, then trade
You are about to walk through one trade step by step: mark the level, judge the breakout, plan your entry, stop and target, and then see two possible outcomes. The chart is drawn with candles: a green candle closed higher than it opened, a red one closed lower. The market is a training one with artificial data. This is practice, not a forecast and not advice.
Level, breakout, retest
Resistance is a ceiling level where price has turned down more than once. Support is the same thing as a floor below. A breakout is when a candle closes beyond the level, not just pokes through it with a wick, the thin tail of the candle. A retest is when price comes back to the level after the breakout and tests it from the other side. If the old ceiling holds price from above, it has become a floor.
Breakout or trap
A false breakout is when price pushes past the level and quickly comes back, and those who jumped in right away get stopped out. Signs of a more reliable breakout: the candle closed beyond the level, volume (how much was bought and sold during that candle) is clearly above normal, and the retest held. That improves the odds but guarantees nothing. So the entry is always planned together with the stop.
The plan: stop, target and R:R
A long is a trade that profits if price rises. The stop-loss, an order that exits automatically at a loss, goes where the idea is invalid. The target is where you take profit. R:R (risk to reward) shows how many times the potential gain is bigger than the risk. Example: entry 50, stop 49, target 53. Risk 1, reward 3, R:R = 1 : 3. Even a good plan will have losses, so risk per trade stays small, for example 1% of the account.
Check yourself
- Price broke resistance and came back down to it. What is this called?
Correct answer: A retest. A retest is a check of the broken level from the other side. If it holds, former resistance has become support. A false breakout would mean price fell back below the level. - Where does a stop logically go in a long from a retest?
Correct answer: Just below the retest low: the idea fails there. The stop goes where the scenario is invalid, not where the money feels fine. Then the position size is fitted to that stop. - Entry 100.8, stop 99.2, target 105. What is the R:R?
Correct answer: About 1 : 2.6. Risk 100.8 − 99.2 = 1.6, reward 105 − 100.8 = 4.2. 4.2 / 1.6 ≈ 2.6, so R:R ≈ 1 : 2.6. - A sound plan still lost. What does it mean?
Correct answer: It happens: the loss was capped in advance. Even good plans lose. What matters is that the loss was limited in advance and that wins cover the losses over many trades.