There is a mantra in trading like this “Keep Calm And Wait Retest”. This is one of the secrets that help many people make money in Forex. So what is Retest that is so magical? Why is Forex trading with it such a safe and effective strategy?
And if you have been looking for a safe but highly effective trading strategy in Forex, then I believe this article is for you.
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What is Retest?
Retest is the process of the price bouncing back to the level that the market has previously broken.
I will explain the above definition through 4 of the most popular Retest patterns encountered in the market with specific illustrations.
(1) The price breaks out the resistance level and retests
When the price breaks out the resistance level and moves up, it usually tends to slightly decrease again to retest the recently crossed resistance.
(2) The price breaks out the support level and retests
First, the price breaks out of the support level and turns down. Then it will rise slightly again to retest the support level it just passed.
(3) The price surpasses the peaks in an uptrend and retests
The market is in an uptrend. The price will continuously surpass the top, creating a higher high than the previous one. And when surpassing the peak, the price often has a habit of retesting the peak it has just passed, then continues to rise.
(4) The price breaks the bottoms in a downtrend and retests
When the market enters a downtrend, the price will continuously decrease, creating lower lows than previous ones. And each time the bottom is broken, the price will likely retest the old bottom it has just passed, then continues to decrease.
The Retest patterns examples in real trading
1. The price breaks out the resistance level and retests.
2. The price breaks out the support level and retests.
3. The price surpasses the peaks in an uptrend and retests.
4. The price breaks the bottoms in a downtrend and retests.
Two types of Retest in technical analysis
Type 1: Standard Retest
A retest is considered standard when the price balances at the retest zones. The candlestick patterns in this case are usually Doji or Pin Bar.
For example, the price breaks through the resistance and moves up. Then it drops back and retests the resistance it just passed. The market created a balanced point with a Doji candle, then the price bounced back up. This is considered a standard pattern.
Type 2: Fake Retest
I will show you an example.
Price breaks the support level and drops. Then it retests with 1 Bearish Pin Bar candlestick. But the price doesn’t decrease like the standard type. It increases sharply again.
In this case, the market creates a Fake Retest to trap the traders.
Why is Retest one of the safest Forex trading methods?
Now you probably understand what Retest is in the price chart. But why is this one of the safest trading methods?
When the market breaks a certain level, it will start a new trend. Retest appears to strengthen that trend. And when you open trades at the retest points, you are following the trend to trade. This is why it is safe.
The secret of this strategy lies in concentration. When the price breaks out the resistance, you have to focus and wait for the Retest signal to Buy. On the contrary, when the price breaks the support level, you will only focus on the Sell trades.
Remember that Retest occurs only when the market starts a new trend. Therefore, its signal is not much. When it happens you only have 2 decisions to make. Open an order or do nothing. This reduces your total number of trades. The fewer transactions, the higher the efficiency.
Important candlestick signals and effective Forex strategy when Retest happens
There are 2 types of important signal candlesticks you need to keep in mind.
Doji or Pin Bar candlestick pattern
These are 2 candlestick patterns that often appear when the market retests. Because in the Retest zone, the price will create an equilibrium. Therefore, Doji and Pin Bar will appear the most.
When this type appears, you can open a position as follow.
Place a BUY position when the price breaks the resistance and retests.
+ Entry: When the price finishes creating a Doji or Bullish Pin Bar candlestick at the Retest point.
+ Stop Loss: Set at the nearest support level before the price breaks out.
+ Take Profit: When the price hits the resistance levels formed in the past.
Place a SELL position when the price breaks the support and retests.
+ Entry: When the price has finished creating a Doji candle or Bearish Pin Bar at the Retest point.
+ Stop Loss: Set at the nearest resistance level before the price breaks out.
+ Take Profit: When the price hits the support levels formed in the past.
Reversal candlestick patterns
When the market retests and creates reliable reversal candlestick patterns, they are also considered safe signals to trade with the Retest strategy.
The most probable bullish reversal candlestick patterns are Morning Star, Bullish Engulfing, Tweezer Bottoms, and Three Inside Up.
Reliable bearish reversal candlestick patterns are Evening Star, Bearish Engulfing, Tweezer Tops, Three Inside Down.
You can trade as follow.
Place a BUY position when the price breaks resistance and retests, creating bullish reversal candlestick patterns.
+ Entry: When the price finishes creating a bullish reversal candlestick pattern at the Retest point.
+ Stop Loss: Set at the nearest support level before the price breaks out.
+ Take Profit: When the price hits the resistance levels formed in the past.
Place a SELL position when the price breaks the support and retests, creating bearish reversal candlestick patterns.
+Entry: When the price finished creating a bearish reversal candlestick pattern at the Retest point.
+ Stop Loss: Set at the nearest resistance level before the price breaks out.
+ Take Profit: When the price hits the support levels formed in the past.
Summary
The market always repeats itself. And Retest is considered one of the safest places to open positions. Your job is to wait for it and enter the trade.
Hopefully, through this article, you will understand better what Retest is and why it has become a formula for making money in Forex. Good luck with your trading.
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The post What Is Retest? The Most Effective Way To Trade Forex With Retest appeared first on How To Trade Blog.
source https://howtotradeblog.com/what-is-retest/
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