Displacement + Retracement Entry
What Is the Displacement + Retracement Entry Strategy?
The Displacement + Retracement Entry Strategy focuses on entering after a strong momentum shift, not before it. It’s designed to help you catch the market after smart money has already revealed its hand through a powerful impulsive move — known as displacement — followed by a controlled pullback into a key area.
Rather than trying to predict when price will take off, this strategy helps you react after the move has started, giving you a safer and often more accurate entry.
Why the Displacement + Retracement Entry Works
Markets rarely reverse without a fight. Before a trend begins, there’s often a sharp burst of energy — a displacement candle or move that signals intent. This is when institutions enter the market with size. Price then pulls back — not randomly, but usually into a zone that offers them a second chance to add positions.
That pullback is your entry. By waiting for displacement first and entering on the retracement, you eliminate guesswork and instead trade with clear confirmation and structure.
Tools and Conditions to Use
To trade this strategy effectively, you’ll want to watch for these core elements:
- A strong impulsive move that breaks structure — this is the displacement
- A retracement into a key zone (breaker block, order block, imbalance, or Fibonacci area)
- A confirmation wick, engulfing candle, or structure shift
- Timeframes like 15-minute, 1-hour, or 4-hour offer ideal clarity
- Market should be showing signs of trend development or reversal
Once these conditions are aligned, you’re ready to take action.
Step-by-Step Guide to the Displacement + Retracement Entry
Step 1: Spot the Displacement Move
Begin by watching for a strong and impulsive push.
- Price should move quickly with large candles and little hesitation
- Volume often increases during this move
- Most importantly, it should break recent structure — not just create noise
This marks the shift in control. You now have your displacement.
Step 2: Identify the Pullback Zone
Once displacement has occurred, expect a retracement.
- Look for price to return into a prior order block, breaker block, or imbalance
- You can also draw a Fibonacci retracement (61.8 to 78.6 zones are ideal)
- Mark this zone clearly as your entry area
Now you wait for price to return — with your focus fully on that zone.
Step 3: Wait for the Reaction
As price pulls back, don’t rush in.
- Let it enter your marked zone
- Watch for a wick rejection or a strong confirmation candle
- Alternatively, drop to a lower timeframe for a structure break
You’re not trading the pullback itself — you’re waiting for the reaction to it.
Step 4: Enter on the Confirmation
Once the pullback rejects your zone, it’s time to take the trade.
- Enter on the close of the rejection candle
- Or use a lower timeframe break of internal structure
- Limit entries work well if you already see confirmation building
Make sure the rejection is clear and supports the original displacement move.
Step 5: Place a Proper Stop Loss
Manage risk by placing your stop in a logical place.
- For longs, place the stop below the wick that tapped your entry zone
- For shorts, place it above the high that tested the zone
- Don’t place stops too close — give the setup room to work
Structure-based stops improve both safety and reliability.
Step 6: Choose a Smart Take Profit Target
Now that you’re in the trade, plan your exit with structure in mind.
- Target the high or low created by the displacement move
- For extended moves, aim for the next swing point or a measured move
- Consider using a 1:2 or 1:3 risk-to-reward ratio
- You can also trail your stop as new structure forms
Exit according to what the chart is telling you — not just your emotions.
Risk Management Tips
- Always wait for a real displacement — not just a strong candle
- Confirm that the retracement hits a meaningful zone
- Don’t enter without rejection or structure confirmation
- Avoid this setup during choppy or low-volume conditions
- Use consistent position sizing and focus only on clean setups
Consistency in execution is where this strategy really shines.
Common Mistakes to Avoid
- Confusing a random push for true displacement
- Entering before price actually pulls back
- Using zones that don’t align with structure or volume
- Placing stops too tight inside volatile pullback areas
- Ignoring market context or higher timeframe bias
Avoiding these mistakes turns a good idea into a profitable edge.
Quick Reference Table
What Comes Next?
The Displacement + Retracement Entry Strategy helps you stop chasing price and start waiting for price to invite you in. Once you see the momentum shift and the market pulls back, you’ll be ready to enter with clarity, confidence, and control.