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Retest of Support/Resistance after a Breakout

Retest of Support/Resistance after a Breakout

2010-03-23 23:42:00
Richard Krivo, Trading Instructor
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Instructor's Response:

 
Regarding the retest of the resistance line...generally, after a breakout takes place, price will come back and test the former support level which has now become new resistance.  (The opposite would be true in a breakout to the upside.) This can present a trader a second opportunity for an entry if the initial breakout was missed.
 
This breakout took place when the candle closed below the support line...see the chart below. When that candle in the center of the circle closed, a trader could have taken a short position with their stop above the upper channel line.  A more aggressive trader would place their stop above the longer wicked candle penetrating the resistance line.
 
Take note of the new descending channel lines also on the chart below. 
 
chart 3 23 10
 
 

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