Overview
This lecture covers rejection blocks in trading, focusing on identifying false breakouts, turtle soup patterns, and rejection blocks for anticipating market reversals at significant highs and lows.
Recognizing Rejection and Turtle Soup Patterns
- False breakouts at major highs/lows (turtle soup) often result in significant moves in the opposite direction.
- Turtle soup long occurs when price falsely breaks below a major low, triggering a strong rally.
- Turtle soup sell happens when price falsely breaks above a major high, leading to a sharp decline.
- Identifying these patterns in real time requires experience and repeated chart analysis.
Distribution and Accumulation at Highs and Lows
- Beyond turtle soup, other accumulation/distribution patterns also form at significant highs and lows.
- Key skill: anticipate rejection when new highs or lows form, as this signals potential reversals.
Bearish Rejection Blocks
- Bearish rejection blocks typically occur in downtrends at swing highs with long wicks (multiple candles possible).
- Defined by the highest wick and the highest open or close in the swing high—ignore the candle's color.
- Price running above the highest body and rejecting signals distribution and a potential decline.
- Sell triggers: aggressive traders sell at the block's low; others wait for a move above the block before selling on weakness.
Bullish Rejection Blocks
- Found in uptrends at swing lows with long wicks (multiple candles possible).
- Defined by the lowest wick and the lowest open or close in the swing low.
- Buy triggers: buy just above the block or wait for a slight move below the block, then buy with a stop just above.
Trading with Rejection Blocks
- Taking profits is often targeted just below the lowest open or close in a previous swing low for shorts.
- Institutional traders focus more on candle bodies (open/close) rather than wicks for identifying key levels.
Key Terms & Definitions
- Turtle Soup — a false breakout above/below a major high/low that quickly reverses direction.
- Rejection Block — a price range marked by the highest (bearish) or lowest (bullish) wick and body in a swing, indicating a likely reversal area.
- Buy Side/Sell Side Liquidity — stop orders above highs (buy side) or below lows (sell side) that fuel false breakouts.
- Distribution/Accumulation — patterns indicating selling (distribution) or buying (accumulation) pressure at market turning points.
Action Items / Next Steps
- Review your charts and identify examples of rejection blocks and their subsequent price movements.