Break and Retest Trading Setup

Jul 16, 2024

Break and Retest Trading Setup Lecture Notes

Introduction

  • Topic: Break and Retest Trading Setup
  • Speaker's Experience: 7 years
  • Types of Traders Benefited: Scalers and Day Traders
  • Main Instruments: Futures, indices, commodities (previously used in crypto and forex)

Time Frames for Setup

  • Preferred Time Frames: 5, 3, and 15-minute charts
  • Other Possible Time Frames: 1-hour, 30-minute (less on 4H or daily as the speaker is not a swing trader)

Key Elements of Break and Retest Setup

  1. Top-Down Analysis: Identify market trends
  2. Order Flow: Use the order book or heat map to verify areas of liquidity
  3. Confirmations: Use price action confirmations
  4. VWAP: Volume-weighted average price for trend direction

Example Walkthrough (NQ Market)

  • Initial Setup: Identify intraday range based on price action
  • Key Levels: Mark support and resistance levels
    • Resistance: 20913.50 (5-minute key level)
    • Support: 20868.50 (5-minute key level)
  • VWAP Analysis: Indicator of volume (bullish above, bearish below)

Steps to Implement Break and Retest Setup

  1. Identify Key Areas: Support and resistance with two candlestick closes for confirmation
  2. Order Flow: Verify absorbed selling and buying pressure
  3. Trend Direction: Use VWAP for validating trends
  4. Entry Strategy: Look for price rejections and new aggressive moves
  5. Entry Timings: Focus on 1, 3, or 5-minute charts when using 5-minute key levels
  6. Engulfing Candlestick Patterns: As entry signals

Additional Considerations

  • Orderflow Tools: Suggested for better accuracy
  • Conservative Entry: Break the previous candlestick low
  • Engulfing Patterns: For entry but be mindful of potentially larger stop losses

Take Profit & Stop Loss Strategies

  • Stop Loss: Based on prior market structure
  • Take Profit: Target next market structure level or use a 1.5 to 2.0 R multiple

Example Review

  • Confirmation through Price Action: Validate using VWAP and candlestick closes
  • Orderflow Usefulness: Provides added edge to identify absorption and liquidity

Conclusion

  • Effectiveness: Profitable setup, useful for both beginners and experienced traders
  • Flexibility: Can be modified to fit one's specific trading playbook
  • Advanced Use: Incorporation of order flow and heat maps for more precise entries

Additional Opportunity: One-on-one coaching available from the speaker