Is the large volume breaking through the previous high and then stepping back on the neckline a secondary buying point?

A strong volume breakout followed by a pullback to the neckline often signals a valid retest and offers a secondary buying opportunity with improved risk-to-reward ratios.

Jul 06, 2025 at 12:42 pm

Understanding the Price Pattern: Breakout and Retest

In technical analysis, a breakout refers to when the price moves beyond a significant level of resistance or support. When this breakout occurs with large volume, it often signals strong institutional or retail interest in the asset. However, after such a move, the price frequently steps back or retraces toward the previous resistance (now acting as support), especially near the neckline of a chart pattern like a head and shoulders or cup and handle.

This retracement is commonly referred to as a retest of the broken level. In many cases, this retest can offer a secondary buying opportunity, assuming other indicators align and the volume during the pullback remains relatively low compared to the breakout volume.

Large volume breakout followed by a pullback to the neckline often suggests that the initial momentum was genuine and not a false move.

What Is a Neckline in Chart Patterns?

The neckline is a key component in several technical chart patterns, most notably the head and shoulders, inverse head and shoulders, and sometimes even double tops and bottoms. It acts as a support or resistance level depending on the direction of the trend.

For instance, in a bearish head and shoulders pattern, the neckline typically connects the two lows formed between the head and the shoulders. When the price breaks below the neckline, it confirms the reversal. Conversely, in an inverse head and shoulders, a breakout above the neckline indicates a bullish reversal.

When the price breaks out strongly from such a formation and then pulls back to test the neckline, traders often look for signs of support at this level to confirm the continuation of the new trend.

• A valid breakout must be confirmed with large volume
• The retest should ideally show lower volume than the breakout
• Price should find support at or near the neckline during the pullback

How to Identify a Secondary Buying Point

A secondary buying point emerges after the primary move has already begun. In this case, the first opportunity would have been during the initial breakout. The second chance comes when the price returns to the previously broken level — the neckline — and shows signs of bouncing off it.

To identify this secondary entry:

• Look for a clear breakout above the neckline with increased volume
• Observe a subsequent pullback to the neckline area
• Check for candlestick patterns like pin bars, engulfing candles, or bullish reversals near the neckline
• Ensure that volume decreases during the pullback but increases again on the bounce

Traders who missed the initial breakout may use this moment to enter with tighter stop-loss levels and better risk-to-reward ratios.

Volume Behavior During Breakouts and Pullbacks

Volume plays a critical role in confirming the strength of a breakout and the validity of the pullback. A sustained rally following a breakout usually requires continued buying pressure. If the pullback happens on low volume, it may indicate that selling pressure is weak and the bulls are still in control.

Conversely, if the pullback happens on high volume, it could signal distribution or strong selling interest, which may invalidate the pattern.

Key volume observations include:

• Breakout volume should be significantly higher than average trading volume
• Pullback volume should be lighter than breakout volume
• A surge in volume during the bounce off the neckline strengthens the case for a secondary entry

Analyzing these volume dynamics helps traders distinguish between healthy corrections and potential reversals.

Practical Steps to Trade the Secondary Entry

If you're considering entering at the retest of the neckline, follow these practical steps to improve your trade setup:

• Mark the neckline clearly using horizontal lines or trendlines
• Wait for the price to break out with strong volume
• Monitor the price action for a pullback toward the neckline
• Look for bullish candlestick formations or momentum indicators suggesting a reversal
• Place a buy order slightly above the low of the retest candle
• Set a stop loss just below the neckline to manage risk
• Target a profit level based on the height of the original pattern projected upward from the breakout point

By following this structured approach, traders can take advantage of late entries while maintaining a disciplined risk management framework.

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Frequently Asked Questions

Q1: Can the same concept apply to bearish patterns with a breakdown?

Yes, in bearish scenarios like a head and shoulders top, a breakdown below the neckline with high volume followed by a retest can serve as a secondary shorting opportunity. Traders watch for resistance behavior at the neckline during the retest.

Q2: How long can the pullback last before the secondary entry becomes invalid?

There’s no fixed time frame, but generally, the longer the price stays around the neckline without showing renewed strength, the weaker the pattern becomes. Most traders expect a bounce within a few candles, especially in fast-moving crypto markets.

Q3: Should I always wait for a retest after a breakout?

Not necessarily. Some breakouts continue without looking back, especially in strong uptrends. However, waiting for a retest often provides a safer and more favorable entry point with improved risk-to-reward ratios.

Q4: What tools can help confirm the validity of the retest?

Use tools like moving averages, RSI, MACD, and candlestick patterns to assess whether the retest is likely to hold. For example, an oversold RSI combined with a bullish engulfing pattern near the neckline can increase confidence in the secondary entry.