Chart Fanatics
July 27, 2026
Trading Entry Strategy: Breaking Retest with Tight Stop Loss
TL;DR
The best entry point for breaking retest trades is when price dips slightly below a key level and closes above it, creating a wick-below body-above candle, with risk-reward ratios of at least 1:2.
Key Takeaways
- 1Ideal entry occurs when candle has a wick below the level but body above it, signaling a breaking retest opportunity
- 2Stop loss placement is critical: set it just below the wick at the exact pivot point where price rejected upward
- 3Risk-reward ratio minimum is 1:2; risking 8 cents per share requires targeting 16 cents or 116 on a stock bought at 100
- 4Fast-reversing hammer candles should be avoided because speed of price rejection limits entry opportunity
- 5Position entry timing is crucial—enter as close as possible to the key level to maximize the risk-reward setup
Notable Quotes
“The best case for me when the price is touching dipping slightly lower than the level and then getting back above the level.”
— Trader
“Risking 8 cents means that I want to get at least twice as much as that. So that's going to be 1.16 somewhere around this area.”
— Trader
Chapters
1. Perfect Entry Setup
The ideal entry is a candle that dips below the key level (creating a wick) while closing above it (body), which signals a breaking retest opportunity ready for entry.
2. Stop Loss Placement
Stop loss should be placed at the pixel below the wick where price quickly reversed upward, keeping the loss tight and close to the entry level.
3. Risk-Reward Calculation
With risk of 8 cents per share on a $1.00 entry, the minimum profit target is $1.16 to maintain a 1:2 risk-reward ratio.
4. Avoiding False Setups
Fast-reversing hammer candles should be skipped because the speed of price rejection prevents a proper entry opportunity from forming.
Glossary
- Breaking Retest
- A trading setup where price breaks below a key level and then reverses back above it, creating an entry opportunity for long positions.
- Wick
- The thin line extending from a candle's body showing the highest and lowest prices reached during that period.
- Hammer Candle
- A candlestick pattern with a small body at the top and a long wick extending downward, often indicating a quick price rejection.
- Stop Loss
- A predetermined price level where a trader exits a losing position to limit losses.
- Risk-Reward Ratio
- The relationship between the amount risked on a trade versus the potential profit; a 1:2 ratio means risking $1 to make $2.