Rejection Short
Pullback, anyone?
1. What is a Rejection Short?
The Rejection Short works best in uptrend or sideways markets when price moves to resistance levels.
This strategy involves shorting when price moves to a key resistance level, rejects it, and goes lower. It’s a great way to capitalize on temporary pullbacks without getting caught in a strong bullish trend.
Why It Works:
In an uptrend, resistance rejection can offer short entries that align with short-term pullbacks. Even in an uptrend, price will encounter periods of consolidation or retracements before continuing upward.
In a sideways market, the rejection at resistance confirms that the level is holding, and price is likely to revert back toward the support levels in the range.
Usually first attempt for breakout fails. This is ideal entry for short term pullback (rejection short) entry.
Setup:
Look for rejection at key resistance levels using these two scenarios:
1. Red Rejection Candle at Resistance
Entry:
Look for a red candlestick near resistance:
Ideal Entry: A red candle near the resistance level.
Alternative: A long upper wick (even if it's a green candle), showing that buyers are struggling to push higher.
The next candle should confirm the rejection by staying below the resistance level.
Stop Loss:
Place your stop loss above the high of the rejection candle.
Profit Target:
Target the next support levels.
Trail your stop after the first target is hit, adjusting to lock in profits.
Keep in mind that this is a short trade in uptrend/sideways market so take profit quickly and trail stop
2. Failed Breakout at Resistance
Entry:
Price breaks above the resistance level briefly but then quickly turns red in the next candle, showing the breakout attempt has failed. Essentially a green candle claims key resistance but immediately next candle turns red.
Enter near the resistance level after the red candle forms.
Stop Loss:
Place your stop loss above the high of the red candle that formed after the failed breakout.
Profit Target:
Set your profit target at the next support levels.
As the price moves in your favor, consider trailing your stop to lock in profits.
Keep in mind that this is a short trade in uptrend/sideways market so take profit quickly and trail stop
Key Clues to Confirm a Rejection:
Red rejection candle at resistance.
Long upper wick indicates failed buyers.
Green candle closing above resistance level immediately followed by red candle
Next candle must confirm by staying below the resistance level.
Entry, Stop-Loss, and Targets for Rejection Short
Counter-Trend Rejection Short: Key Guidelines
Note in an uptrend, shorting at resistance is a counter-trend trade, so caution is key. Here's how to manage it effectively:
Quicker Profit-Taking:
Take profits faster than usual, especially on the first target.
For example, close 50% of the position at the first support level.
Flexible Mindset:
If price shows strength after entering the short (e.g., green candle close above the resistance level or hit a stop loss), be ready to close the short and flip to long.
Stop Loss Adjustments:
Trail your stop loss closer to breakeven once the price moves in your favor to reduce risk.
This approach ensures you're locking in gains quickly and staying adaptable in case the uptrend resumes.
Conclusion:
For an uptrend or sideways market, the best short strategies focus on reversals rather than breakdowns. Look for rejection at key resistance levels, and intraday price action signals that suggest a pullback or trend exhaustion. These strategies work best when momentum shows signs of weakening at resistance or after price fails to continue breaking higher.
Example:
[To be Added Later]