TLDR;
This video features Vincent Desiano from Options Insider, who shares his highly successful trading strategy based on the "break and retest" concept. He emphasizes the importance of patience, reading price action within a defined "battle zone," and understanding the correlation between different market indices. Vincent also discusses risk management techniques, including the use of an "invalidation line" and scaling out of positions to secure profits.
- Core strategy: break and retest
- Key aspects: patience, reading price action, risk management
- Importance of understanding market correlations
Introduction [0:00]
Vincent Desiano, founder of Options Insider, shares his trading strategy, emphasizing its core as the break and retest concept. He highlights that while the concept is widely known, the key to success lies in the execution, confidence, and psychology behind it. Repetition and experience are crucial for successful implementation.
Break and Retest Basics [0:51]
The best break and retest setup occurs when the price breaks above the previous day's high (PDH). After marking the PDH on the chart, Desiano waits for the stock to move higher and break above this level. He cautions against entering immediately on the breakout, as this is a common mistake that leads to fakeouts. Instead, he waits for the price to pull back to the PDH level, which he calls the "battle zone."
The Battle Zone [3:55]
The "battle zone" is where the price action tightens, and manipulation occurs. Reading the price action in this zone is crucial for successful trading. Desiano uses the two-minute time frame and observes the candles for 6-10 minutes to gauge buyer and seller interaction. Bullish wicks indicate buying pressure, while bearish candles suggest potential failure. He equates the pullback to a "fair value gap" or a "low volume node," emphasizing the importance of confirmation and a structured game plan.
Margin of Error and Confirmation [7:35]
Price may temporarily dip below the retest level, requiring a margin of error. Traders should look for wicks that go below and then pop back above the level, indicating a battle between buyers and sellers. A bull flag pattern forming after the retest is a positive sign. The entry point is when a candle engulfs the previous price action, signaling a continuation of the upward trend.
Flipping the Trade and No Trade Zone [11:57]
If the price rejects the retest level, traders should consider a short position, but only if the S&P 500 and NASDAQ also show signs of rejection at major supply levels. A "no trade zone" exists between the overnight high and the previous day's low or opening print. Entering a short position requires the S&P and NASDAQ to align, with the S&P failing below the morning low or open.
Risk Management [14:39]
To set up risk, the retest level becomes the "invalidation line." If the price action shows clear rejection below this level, the trade is invalidated. The first price target (PT1) is the previous breakout high, where a portion of the position is scaled off to reduce risk. The goal is to see if the previous high becomes another break and retest continuation point. Risk-reward is calculated based on the distance to PT1 versus the potential loss if the price closes below the invalidation line.
Scaling Out and Trade Duration [18:02]
Taking profits at the high reduces risk, as the price could reject and double top. Typically, a quarter to half of the position is sold at the high, aiming for a 15-20% win. These trades are relatively quick, taking about 10 minutes to reach the high after a good retest setup. The entire process, however, can take 20-30 minutes, requiring intense focus.
Discretion vs. Strategy [25:16]
The initial entry and retest phase rely on pure strategy, while discretion comes into play after breaking through the highs. Reading the price action becomes crucial to determine if the trend is still strong or if rejections are forming. Scaling in is possible if the same process is followed at new highs. Watching the NASDAQ and S&P during this time is essential.
Bearish Break and Retest [27:29]
For bearish setups, the same concepts apply. If the market opens above a previous day's low, caution is advised when shorting back into that level. If the market opens below the previous day's low, a morning rally into that level, followed by a rejection and a red candle closing underneath, signals a potential short. A bear flag pattern forms, and the entry is taken on the break of the flag, with a stop loss above the high.
No Trade Zone in Detail [34:21]
The "no trade zone" (NTZ) is the area where price action is difficult to read, and fakeouts are common. It's defined by the previous day's high and the pre-market low. Trading outside the NTZ, after a break and retest, is preferred. The NTZ helps avoid unnecessary trades and conserve energy.
Big Four Correlation [41:18]
Desiano monitors the NASDAQ futures (NQ), S&P 500 futures (ES), SPY ETF, and QQQ ETF daily to spot discrepancies. If the NASDAQ is above a high while the S&P is rejecting an equal high, it's a bearish sign, and longing the market should be avoided. The S&P should also be breaking and retesting above its high for a valid long setup.
Pros and Cons of Break and Retest Strategy [45:28]
Pros:
- Teaches patience and avoids FOMO.
- Basic and effective.
- Structured approach.
- Focuses on reading price action at key levels.
- Potential for outlier trades with high P&L.
Cons:
- Requires confidence to enter near the retest level.
- Requires speed in execution.
- Discretion is needed after the initial trade management phase.
Live Chart Examples [56:52]
Desiano presents live examples from April 28th on NASDAQ futures, highlighting a short trade that broke below the overnight session low. He emphasizes waiting for the retest and reading the candles for confirmation. He also shows a long trade forming as they record, demonstrating the bull flag pattern and the importance of the "battle zone."
Netflix Trade Example [1:10:08]
Desiano reviews a swing trade on Netflix, using the four-hour chart to identify key inflection points. He spots a rejection at a major previous low and sets up a put option, risking back over the high. He scales out of the trade as it moves to the downside, demonstrating the same break and retest concepts on a larger time frame.
Palantir Trade Example [1:15:29]
He reviews a long trade on Palantir, highlighting the pre-market high and waiting for the retest after a morning drive above that level. He emphasizes avoiding the FOMO and waiting for the structured pullback to the clear inflection point.
S&P 500 Trade Example [1:21:08]
Desiano shares a live trade on the S&P 500, emphasizing the importance of avoiding chasing breakouts and waiting for the retest. He identifies the pre-market high and Wednesday low as confluences and enters the trade on the break of the flagging action. He scales out as the trade moves in his favor, demonstrating the break and retest strategy in real-time.