Break close and retest

You will learn

  1. Identify the specific price action that confirms and validates the pattern and sets up the trade.
  2. Distinguish between false and genuine reversals in price, thereby increasing the probability of having a successful trade.
  3. Wait for the ideal pre-trade price action.
  4. You will understand what a Break, Close and Retest (BCR) of the neckline is.
  5. Why it increases the probability of success

Why should you learn this

A BCR adds confirmation that the reversal is genuine.

More favourable trade entry levels, which improves the risk to reward of the trade, which is a good thing for you as a trader.

Retests are often followed by participants entering the market adding strength and volatility to the move.

It also encourages you to be disciplined about your trading, making it so you are not just jumping in when you see price break a level, which would often lead to many more false signals.o

If you don't learn it, this will happen

You will be plagued by bad trades generated by false reversal signals, leading you to be stopped out more often, losing money from a trade, instead of making a profit.

Your risk to reward will suffer, resulting in lower profitability.

Your discipline as a trader ill be lower, leading you to take random price entries and FOMO trades, which will lead to inconsistency.

What it'll be like, once you've mastered this

You'll be a master at recognising price action behaviour that puts the odds very much in your favour.

You'll be confident and have a greater sense of control over your trading outcomes.

You'll be more capable of identifying opportunities, managing risks, and executing trades effectively.

This empowerment will lead to a stronger belief in your ability to achieve consistent profitability in the markets and result in having a deep sense of satisfaction and fulfilment.

Words to know

  • Break: When the price moves beyond the neckline. This suggests a potential shift in market sentiment and indicates that the balance between buyers and sellers has shifted.
  • Close: When a candle's closing price is beyond the neckline. After a price breaks through the neckline, it is important to asses whether the breakout is sustained or not. We look for a candlestick or bar to close above or below the breakout level to confirm the validity of the breakout. A close beyond the neckline suggests that there is sufficient momentum and conviction in the market, reinforcing the potential for a sustained price move.
  • Retest: When price retraces back to the neckline (as a minimum) after a close beyond the neckline. Following the close beyond the neckline, we lOk for a price to retrace back to touch "(retest)" the neckline as a minimum. It is perfectly OK for price to retrace back all the way through the neckline as long as it does not invalidate the pattern. The retest is the last element of the BC&R price action. Once completed we can look for potential trade entries.

Practising

  1. Correctly draw the neckline, and wait for the right shoulder to form

  2. Close beyond: Make sure that the price candle or bar has closed beyond the neckline. This validates the neckline break and confirms the likelihood of a trend reversal.

    If it passes beyond the neckline, then closes back on the original side, this is a false breakout.

    For stocks, (not currency pairs) false breakouts ok, because stocks move faster.o

  3. Retest: Make sure that price has retraced back to the neckline.

    Price needs to touch the neckline (closing doesn't matter).

    It's preferable that it passes back through the neckline, because it can give us a better risk to reward ratio.

    Note: If price pushes to PCL before the retest, then the pattern is no invalidated.