Price Rejection Plays

[Soultrader]

One of my favorite MP based setups is based on false breakouts. I like to play price rejection and fade the moves. For example, if price breaks out of value, is rejected and falls back in.... I would fade it and go short. Picture the psychology behind the breakout traders who bought as price hit new highs or broke out of value. They have stops placed several ticks below the value high pivot. This will trigger a stop run and send price lower.

The chart below shows a similar rejection of price. New traders bought the break of the daily pivot (yellow line) and value low cluster level. Picture the psychology behind these traders. If price is rejected, they are not hurting. They will need to liquidate causing price to decline. A good short entry would be a below the daily pivot or around 12260 as price falls below it. Notice the 40 pt drop.

The best way to confirm if a breakout is valid or not is by looking at volume. If there is less volume at new highs or a breakout, that means less buyers find that price attractive. Simply put, buying has dried up. Hence we are likely to see a reversal.

[TinGull]

Perfect setup. It did look like price wanted to go further into value after the buying that came into the market. Watching the net selling at that level told it all, though.