Rejection Blocks - A-Z Guide Episode 4

Summary

In this video, the focus is on understanding rejection blocks, a powerful price action concept in trading. Rejection blocks occur when price fails to break through the body of a candle after testing the wick, typically at extreme levels (top or bottom). The video emphasizes the importance of sticking to a few key concepts to build mastery, noting that psychology and consistency are the true drivers of success in trading. Practical examples are provided, showing both bullish and bearish rejection blocks and how they can be used to anticipate price reversals, especially in counter-trend moves.

Takeaways

• 😀 Rejection blocks occur when a candle has a long wick and price reverses without sweeping the entire wick.
• 😀 Candle bodies represent real liquidity and trading volume, while wicks are often for manipulation.
• 😀 Focus on the body of the highest (bearish) or lowest (bullish) candle to identify rejection blocks.
• 😀 Rejection blocks are typically found at the extremes of price action (top or bottom), not in the middle.
• 😀 Long wicks signal potential traps for breakout traders, causing stops to be taken before the real move.
• 😀 Bearish rejection blocks occur at the top, sweeping above the body but not the wick before price drops.
• 😀 Bullish rejection blocks occur at the bottom, dipping below the body but not the wick before price rises.
• 😀 Rejection blocks often appear during counter-trend moves, respecting these key levels before continuing the trend.
• 😀 Mastery in trading comes from focusing on a few key concepts consistently, rather than learning everything at once.
• 😀 Trading psychology is more important than concepts; sticking to a method builds intuition and disciplined execution.
• 😀 Rejection blocks are simple to understand and should not be overcomplicated; study them and apply them in practice.

Q & A

What are rejection blocks in trading?

Rejection blocks are areas in price action where long wicks appear at the top or bottom of candles, indicating price manipulation or false breakouts. These blocks are significant because they suggest that price may not reach the full extent of the wick before reversing.

Why is psychology emphasized in trading over just knowing concepts?

Psychology plays a crucial role in trading because sticking to one concept and developing mastery in it requires patience, discipline, and the ability to control emotions. Trading is not just about understanding concepts but also about sticking to a strategy and avoiding impulsive decisions.

What is the key characteristic of a rejection block?

The key characteristic of a rejection block is the long wick at the top or bottom of a candlestick, indicating a potential reversal after price manipulation. The wick represents a move in one direction followed by a rejection, often resulting in price moving in the opposite direction.

How are rejection blocks different from breaker blocks or order blocks?

While breaker blocks and order blocks are also used to predict price movements, rejection blocks specifically focus on the long wicks of candles, showing where price manipulation has occurred. Breaker and order blocks may not necessarily involve wicks as significant as those found in rejection blocks.

When are rejection blocks most effective?

Rejection blocks are most effective when there is a long wick on the candle. This typically happens at the top or bottom of a trend and suggests that price may not reach the full extent of the wick before reversing. These blocks are also more reliable when they occur against the prevailing trend.

Why is it important to avoid constantly switching trading concepts?

Constantly hopping from one concept to another prevents traders from mastering any single strategy. Sticking to one concept allows for deeper understanding and development of intuition, which is essential for long-term success in trading.

What happens when a rejection block is formed in the opposite direction of the main trend?

When a rejection block forms in the opposite direction of the main trend, it is often a counter-trend move. These moves may not always take out the low or high of the wick but will typically respect the rejection block, continuing in the opposite direction of the trend.

How can rejection blocks help identify potential false breakouts?

Rejection blocks are useful for spotting false breakouts because the long wick suggests that price moved in one direction but was quickly rejected. Traders can use this information to avoid entering trades at the peak of the breakout, potentially preventing losses from manipulation.

Why do rejection blocks mostly appear at the extremes of price action?

Rejection blocks typically appear at the extremes (top or bottom) of price action because this is where manipulation often occurs. The long wick indicates a price push in one direction before it reverses, and the rejection block marks the point of reversal.

How do rejection blocks relate to liquidity in the market?

Rejection blocks are connected to liquidity because price often sweeps above or below the bodies of candles but not the wicks. The bodies of candles represent the most traded areas, while the wicks represent manipulation and liquidity hunting by brokers or institutions.