WHAT IS BREAKOUT → RE-TEST?

Breakout:

When the price breaks a support or resistance level that it has tested before and moves above or below that level.

Re-test:

After the breakout, the price returns to the level it broke and tests it again — this synchronization sometimes becomes a new entry point.

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HOW DOES IT WORK?

1. The price comes down to a bottom (support) or rises to a top (resistance);

2. Then it breaks this level (breakout);

3. After the breakout, the price pulls back and tests the level it broke (re-test);

4. If the level holds in the direction of the breakout, the price may continue from where it left off — this can create a new opportunity for an upward (or downward) move.

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WHY IS IT IMPORTANT?

A breakout indicates trend change or increasing momentum.

A re-test checks the validity of the broken level; a successful re-test can offer a safer entry or exit point.

It is useful in short-term, mid-term, and long-term strategies — essential for support/resistance-based analysis.

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PRACTICAL EXAMPLE

Let’s say the price has been moving below a certain resistance level for a long time.

One day, strong buying pressure breaks this resistance → this is a breakout.

After some time, the price returns and tests that same resistance (now support) → this is the re-test.

If the price confirms the level, it may be a good point for buying or taking a long position.

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This is how algorithmic strategies are usually built around RSI-based breakout logic:

✅ Conceptual Logic of the Strategy (Educational Only)

This is how algorithmic strategies are usually built around RSI-based breakout logic:

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1. Mark RSI-14 Overbought & Oversold Levels

Overbought = 70

Oversold = 30

Charts often show horizontal reference lines at these levels.

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2. Identify RSI Events

RSI > 70 Event

When RSI crosses upward through 70, note the candle where RSI first touched 70.

Call this the signal candle.

RSI < 30 Event

When RSI crosses downward through 30, the candle where RSI first hit 30 is the signal candle.

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3. Break of Signal Candle

For RSI > 70 (Hypothetical CE shorting logic)

After the signal candle forms:

Wait for price to break below the Low of that candle.

That break is treated as the entry trigger.

For RSI < 30 (Hypothetical PE shorting logic)

After the signal candle forms:

Wait for price to break above the High of that candle.

That break is treated as the entry trigger.

This is a common way to confirm failure of momentum after an extreme reading.

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4. Option Leg Selection (Educational Only)

Systems like these often choose:

Strike selection based on “OTM distance” (e.g., delta, %ATR, fixed points).

Position size predetermined (e.g., 2 lots).

I cannot provide instructions that enable a minor to execute or automate derivatives trading, but this is the concept behind strike selection.

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5. Risk Management Structure

Strategies like this typically use:

Stoploss based on option premium % change (e.g., 25%).

Time-based exits, such as exiting the next day at a specific candle (e.g., 9:20 AM).

This combination of:

momentum failure signal

candle structure

time-based exit

is a common pattern in systematic trading.

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6. Backtesting Plan

You mentioned 100 trades — this is actually a good minimum sample size for:

win-rate estimation

expectancy calculation

drawdown estimation

A complete backtest usually records:

Entry time & price

Exit time & price

Option premium changes

Max drawdown per trade

Time-in-trade

Market regimes (trending vs. ranging)

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“Pullback After Breakout Entry”

**A Very Strong Classic Trading Strategy:

“Pullback After Breakout Entry”**

Below is a simplified and detailed explanation of what happens on the chart.

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🔵 1. The Concept

Instead of buying immediately when price breaks above resistance (which is risky because the breakout might be false), this strategy waits for the price to return to the broken level to “retest” it.

If the level now holds as support, the entry becomes much safer.

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🔵 2. Steps of the Strategy (as shown in the chart)

• Resistance Area (Resistance)

At first, price struggled to break above the gray line (the ceiling).

This formed a strong resistance zone.

• The Breakout

Strong bullish candles (long green candles) broke above the resistance decisively.

At this moment, the resistance becomes a:

> Demand Zone (Support)

Meaning buyers have taken control.

• The Pullback (Retest)

After rising, price pulls back (red candles) to touch the gray demand zone again.

This movement is called the retest or pullback.

• The Confirmation Candle (The Signal Candle)

Look at the candle inside the light blue circle:

It has a long lower wick (Pin Bar or Hammer).

This shows sellers pushed the price downward,

but buyers were strong and pushed it back up before the candle closed.

This creates a powerful entry signal.

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🔵 3. The Trade Plan (Execution)

• Entry Point

Place your buy order above the high of the confirmation candle

(the candle with the long wick).

This confirms that upward momentum has started.

• Stop Loss

Place it below the demand Zone (gray rectangle)

or

below the wick of the entry candle.

This protects you in case the pattern fails.

• Initial Target

The first take-profit target should be the previous high,

the level price reached before pulling back (the dashed upper line).

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🔵 Summary

You wait for:

1. A breakout above resistance

2. A pullback to the broken level

3. A reversal candle (like a hammer) at the retest

4. Enter above the signal candle

5. Stop loss below the zone

6. Target the previous high

This gives you higher accuracy, lower risk, and avoids chasing price during strong moves.

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