Lecture Notes: Breaks and Retests in Trading

Introduction

• Day 10 of trading camp.
• Focus: Importance of understanding breaks and retests for trading.
• Core trading strategy involves market structure analysis.

Market Structure Basics

• Uptrend: Characterized by higher highs and higher lows.
• Downtrend: Characterized by lower lows and lower highs.
• Recognizing these structures creates opportunities for breaks and retests.

Phases of Market Movement

1. Impulse Break: Initial movement in a new direction.
2. Correction/Retest: Pullback to retest previous highs (uptrend) or lows (downtrend).
3. Continuation: Resumption of original movement direction.

Strategy for Breaks and Retests

• Break and Retest: Key trading strategy.
• Wait for the market to break a structure and then retest it before entering.
• No entry without a retest.

Practical Examples

• Downtrend Example:
  • Market forms lower lows and highs.
  • Breaks previous low, retests, and continues downward.
• Trend Line Example:
  • Market can retest previous high points or a trend line.
  • Example: Market touches a trend line multiple times, breaks it, retests, and continues in the breakout direction.

Application and Backtesting

• Emphasize backtesting to reinforce strategy understanding.
• Look for trends and market structure breaks and retests.
• Understanding candlestick patterns aids in timing entries.

Conclusion

• Breaks and retests are simple yet effective.
• Backtest and apply knowledge for real results.
• Simplicity is key; avoid overcomplicating the market.
• Encouragement to apply these techniques to improve trading outcomes.