Setup: breakout + retest
Lesson 34 of 39 in the course “Crypto”. Free, with animations and a quiz.
A setup is a preset list of conditions for a trade. The condition here: a level price has turned at 3+ times. We wait for the breakout. Do not enter before it: the level may hold price again.
Step 1: a candle closed above the level. That is the breakout. We count the close, not the wick. We do not jump in yet: some breakouts turn out false.
Step 2: price came back to the broken level from above. That is the retest, a check of whether the old ceiling becomes a floor. What do we do?
Price is back at the broken level. Your move? Answer: Wait for a bullish confirmation candle. The right move is to wait for confirmation, like a pin bar or bullish engulfing. It filters out retests where the level fails. Buying right away is guessing.
Step 3: a candle poked below the level with its wick but closed above it. Buyers defended the level: that is the confirmation. Enter at this candle's close.
SL (stop-loss, auto exit at a loss) goes under the level and the retest wick. TP (take-profit, auto exit in profit) at the nearest resistance. Rule of thumb: potential profit at least twice the risk (1:2). Cancel: a close back under the level.
Check yourself
- When do you enter the breakout + retest setup?
Correct answer: After confirmation on the retest. First the breakout, then the return to the level, then a confirming candle. Confirmation filters out some false signals. - Where does the stop-loss go in this setup?
Correct answer: Under the level and the retest wick. If price falls below the level and the retest wick, the idea is wrong. A stop right on the level often gets hit by normal noise. - When is the scenario cancelled?
Correct answer: Price closed back under the level. A close under the level means the breakout was false. There is no point holding on to the idea.