Reversals are one of the most common elements in markets traders are wanting to either know of to avoid or confirm their trade. The clues to whether a reversal is in play are hidden in the price action and easily found. These key elements are found in rejections which show up in the price action formation of long wicks occurring at key price levels.

The key point in a candle which confirms a rejection at a key price level is a wick and the larger the wick, the better. Because this is the minimum amount to satisfy the condition that one side of the market does not have more control than the other. Think about it like this. This would translate into the bears having at least as much strength on the board in terms of order flow than the bulls because they were able to take half of the gains and eliminate them. In some sense, it would actually translate into more strength because they also had to stop the momentum which was already upward.

Thus, to stop momentum on any moving object takes energy and force.

*HIGH PROFIT* Rejection Candle Reversal Trade Signal

This then translates into there being the minimum requirements for a reversal for it demonstrates the bears have the minimum energy and force to reverse the trend. Obviously the larger the wick the better because if the bulls who have the current handle on the market run into some sell orders and are not only unable to keep advancing price, but get pushed back quite a strong amount, this means the bears have taken short term control of the market and this can be seen in the price action.

Remember, a wick is a rejection of price. If price was accepted at a certain level, it would stay there or advance past it. However, if the order flow in the market does not support price being at that level, it will reject it and send it back because the institutions would be finding that price over-valued and time to sell.

This is what it means when we say a wick is a rejection of price action. This is the trickier part of your assignment — finding the key price levels. However with a few simple tools, its not that hard to confirm. We will suggest three tools to help you confirm the reversal is happening at a key price level. Before we do, its important to note this works better on time frames such as the 4hr and daily charts. Anything below this does not contain enough time to signify an important impact on the market.

Thus, when we are talking about these, we are referring to the 4hr or daily charts. Because institutions place intraday orders around pivots more than anything else. They enter the market at these locations more than they do any other price levels so when we see price reject strongly off a pivot point — it usually has more impact.

Taking a look at Exhibit A below, we can see how the price action had a pretty strong intraday rejection off of the M3 pivot level at 1. This was the highest price surge for any candle on this trading day and it rejected back down below the daily pivot to stop where? At the M2 Pivot showing you the market is respecting these two pivot levels.

The fact that this pivot also happened to line up with a lot of the support for the candles to the left along with the swing low all the way to the left of the chart at the same price level shows this to be a strong intraday price rejection point. One other key point in the price action is that there is two way interest here as the support of this candle lies with a decent rejection to the downside which is also at a pivot.

Thus, when rejections occur at intraday pivot levels, they have more potency so look for them to line up at a pivot whenever possible. Which forex broker rebates would we consider key?

Using Rejections + Price Action to Trade Reversals - 2ndSkies Forex

Now which fib levels are the next question because they can be drawn from anywhere. Anytime you have a strong trend in place, there will be market swings and corrections. Thus, when option spread trading software pull fibs, we always pull them in the direction of the trend looking at the major swings. Below is an example.

In this chart above we have the GBPUSD 4hr chart where price was consolidating after a downmove and then started another leg down. Price hit a floor around 1. However it created two rejection wicks right at the same level which was not only support for the previous consolidation move but also a If the market rejected price at a key level once before, it certainly should be considered it could happen again.

Looking at the chart below, we actually have two examples in the same chart. Starting at the bottom the price action was stable and holding at a particular level building a base around the After several touches on this price level, it launched up towards It then very quickly re-advanced on this same price and swing high only to create a very strong rejection at this level by producing forex rejection candle very large wick.

The price action from here then went all the way down to where? The last major base of support down at Thus, by spotting these previous key swing highs and lows, and looking for larger rejections off of them, we can find great trading opportunities or examine the price action to confirm our reversal trade. To trading etfs vs stocks more about how to spot these simple high-probability setups, you can check out the Advanced Price Action or the ProForex Ingles supermarket stockbridge ga which will teach you rule-based proprietary systems to trade these profitable setups.

I'm Chris CapreFounder of 2ndSkiesForex. I help traders of all levels change the way they think, trade and perform. As a professional trader, I specialize in trading price action.

Using Rejections + Price Action to Trade Reversals - 2ndSkies Forex

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