ICT Mentorship Core Content - Month 04 - ICT Rejection Block

Summary

In this tutorial, the instructor dives into key concepts of rejection blocks and turtle soup patterns in price action trading. The video highlights how to recognize false breakouts at major highs and lows, explaining the psychological aspects of anticipating price movements before they form. The instructor introduces the concept of rejection blocks, both bearish and bullish, and provides a strategy for using them to predict price reversals. The video also discusses entry techniques, focusing on candlestick analysis and understanding the structure of price movements to improve trading strategies. Overall, it's a deep dive into advanced chart reading and trading psychology.

Takeaways

• 😀 Turtle Soup is a pattern where a price violates previous highs or lows, leading to significant price movement away from these points.
• 😀 False breakouts, or 'turtle soup,' are best recognized after significant price swings following the violation of highs or lows.
• 😀 Anticipating rejection at new highs and lows is a key skill for traders, as this often signals potential price reversals.
• 😀 A 'Rejection Block' can occur when price spikes above a previous high or below a previous low, only to reverse after clearing liquidity.
• 😀 Price action doesn't follow geometric patterns like bull flags or pennants; it reacts to order flows and liquidity runs.
• 😀 A Bearish Rejection Block is identified when a price spike clears buy side liquidity and then reverses, signaling distribution.
• 😀 Traders should focus on the highest or lowest open/close in a swing to identify rejection blocks, not just the wicks of candles.
• 😀 Rejection blocks can occur on multiple candles, and the highest open/close in the swing forms the basis for setting up trade entries.
• 😀 For a Bearish Rejection Block, the trigger to sell is when price moves into the low of the block, or slightly above it, for a confirmed move lower.
• 😀 For a Bullish Rejection Block, the trigger to buy is when price moves into the high of the block, or slightly below it, and shows strong rejection.
• 😀 Understanding distribution and accumulation through rejection blocks is key for timing entries and exits in both uptrends and downtrends.

Q & A

What is a turtle soup in trading?

A turtle soup refers to a false breakout at a major high or low in price action. It involves price moving past a previous high or low, triggering stops, and then reversing direction significantly, often resulting in a major price swing in the opposite direction.

How can a trader identify a rejection block in price action?

A rejection block can be identified when a price forms a high or low with long wicks on the candles. The price then moves past the body of the candle or candles to trigger liquidity and subsequently reverses, rejecting the move and leading to a price swing.

What is the significance of wicks in a rejection block pattern?

Wicks highlight areas where price has tested extremes and failed to maintain those levels. In a rejection block, wicks draw attention to potential areas of resistance or support, showing where price has been pushed above or below a certain level but then rejected.

What are the key characteristics of a bearish rejection block?

A bearish rejection block occurs in a downtrend, where price forms a high with long wicks, then moves above the highest body of the candlestick to run buy-side liquidity before reversing and moving lower. This pattern signifies distribution and potential for a price decline.

Why is it important to focus on the bodies of candlesticks rather than the wicks?

The bodies of candlesticks, particularly the open and close prices, are considered more significant than the wicks because they reflect the real price action and the actual market consensus at the time, while wicks show only the temporary extremes or price tests.

What does a 'turtle soup long' setup indicate?

A turtle soup long setup indicates that the market has violated a previous low, triggering sell stops, and is expected to reverse higher, as traders who were stopped out begin buying. This setup represents a buying opportunity after a false break below support.

How does a 'turtle soup short' setup form?

A turtle soup short setup forms when the market violates a previous high, triggering buy stops, and then reverses lower. Traders expect a price decline as the buy-side liquidity is exhausted and the market starts moving down.

What role does experience play in identifying false breakouts and rejection blocks?

Experience plays a crucial role in identifying false breakouts and rejection blocks because these patterns are often not immediately obvious. Traders need to spend time reviewing charts and observing how these formations play out over time to develop the skill to anticipate them before they happen.

What is the concept of 'distribution' in the context of rejection blocks?

Distribution refers to the market behavior where selling pressure increases at a particular level, often seen when price moves above a certain high (in the case of a bearish rejection block) and then reverses. This indicates that larger market participants may be selling into the rally, setting the stage for a price decline.

How can a trader use rejection blocks to determine entry points?

A trader can use rejection blocks to determine entry points by identifying the highest or lowest body within the swing high or low, respectively. After a price violates this level, traders can enter positions either aggressively or wait for confirmation of rejection before making their trade.