Acceptance, Non- Acceptance and Rejection….
Acceptance, non-acceptance and rejection. These are the three words which almost all the discretionary price action traders (successful traders to be precise) use a lot while explaining the trades they have taken. Yes… Everything appears f@&king clear in hindsight, but can we sense that acceptance and rejections during live when candles are printing on the hard right edge after breaking a level? Good news.. Yes, we can..
You might be wondering where the hell do we use these three terms in our trading. Let me explain that first.
People repeatedly ask this question.
“What gave you the confidence to fade the breakout in spite of the strength in the swing you faded??”
My answer to that question was always vague. After breaking that HTF S/R level or the range S/R level, price didn’t get accepted, and that is the moment where I started doubting the breakout.
Well… Till now, not a single person asked me how did I know it was accepted or how did I know that it was not accepted. 😀 If you had asked this question long back, I guess I wouldn’t have a convincing answer at that time as I didn’t know how to explain that to others. I can feel that in my trading, but I didn’t know a proper answer till I came across the impulsive and corrective waves stuff from Elliot Wave Theory a few months back when I was trading hourly charts which have revolutionized my whole perception towards the market. I really don’t believe in everything about EW theory like Fib ratios and wave counting stuff. But the only concept that I fell in love with is the introduction of impulsive and corrective swing behaviours.
” If price shows impulsive behavior after breaking a level, that means it got accepted.
If price shows corrective behaviour after breaking a level, that means it is not accepted.
If price struggles to close beyond the level after breaking a level, that means it got rejected.. “
Every price interaction with the level is unique. Whatever technical analysis you learn about the market, it is just a framework that tells you what exactly to look for to make an informed decision thereby eliminating chaotic decision making. That, in turn, gives you a rough picture of odds in favour and the risk at that point of time.
Enough with the theory. Now look at the following image.
The image is self explanatory and I don’t think there is more explanation I can add.
In image A, the market is impulsive after breaking a level and hence I call it as acceptance.
In image B, the market is corrective after breaking a level and hence I call it as non-acceptance.
In the image C, market struggled to break the level, failed twice and hence I call it as rejection..
So when the price is accepted after breaking a level, will I blindly take a BPB trade with a limit order at the level?
When the price is not accepted after breaking a level, will I fade the breakout immediately??
What about the rejections? Will I immediately fade the move??
If you are thinking that the answer to this question is no again, you are wrong… 😀 I fade the moves that are rejected (2 times failure principle as explained in the image). I will come back to these questions at the end of the article again, but let me explain where exactly we use these.
While defining the trend using the cycle method, the third leg after breaking swing high (or low) for an uptrend (or downtrend), the price has to be accepted after the breakout.
Trend change confirmation.
Price has to be accepted in the new trend direction after breaking the trend violation pivot to confirm a trend change.
In deciding whether to take a CT trade or with trend trade after breaking HTF S/R level.
In deciding whether to go for a BPB or a BOF after breaking the range S/R level.
In determining the strength of the trend.
A healthy uptrend will have price acceptance after breaking swing highs at new highs of the trend.
A healthy downtrend will have price acceptance after breaking swing lows at new lows of the trend.
If there is rejection or non-acceptance at new highs in uptrend or new lows in a downtrend, that’s a sign of weakening trend. Remember, the weak trend doesn’t mean an immediate CT trade unless it trades near HTF S/R level.
Now let’s get back to the three questions I skipped before explaining the above 5 points. They are.
What to do when you see the acceptance of price after breaking an HTF S/R level or a range S/R level?
Once there is acceptance of price after a breakout, there will be three possible scenarios..
You can neatly time trade in the direction of the breakout when the price got accepted after the breakout and the BPB turned out to be corrective.
Look at the following trade for example..
In this scenario, the trade will be in the direction of the breakout, but the interaction with the level might not be that neat like the one shown in the above image. Also, these trades have to be managed a bit carefully.
Look at the following trades..
No BPB at all.
When there is no BPB, we just trust the trend and look for normal PB and CPB trades.
Now let’s go to the second question.
What to do when price is not accepted after breaking a HTF S/R level or a range S/R level?
Fading the move immediately after sensing non-acceptance is a bad idea. Remember the rule of 2 and give the market a second chance to prove that it totally trapped the BO and BPB traders. The ideal case to take a CT trade when the price is not accepted looks as follows.
Of course, there can be a lot of variations other than this ideal case in live markets like there can be a corrective BPB instead of an impulsive BPB, and the move after BPB can either be corrective or impulsive. But the point here is, even when there is clear non-acceptance after breaking the level and price still trades beyond the broken out level, wait for a second attempt failure after BPB to fade the move. And go with the direction of the breakout if the price gets accepted after breaking the swing high or low after BPB rather than looking for a CT trade.
Look at the following trades to get an idea…
Sometimes, market action will be totally weird. There is no reason to trade environments like the one shown in the following figure, but just posting one trade of mine to give you an idea about the concept.
Now the third question.. What to do when you see a rejection from a HTF S/R or a range S/R??
Fading the move when you see the rejection with a stop beyond the second attempt failure is a good trade to take.
Look at these charts..
So are these the only three places where we use the concept of acceptance, non-acceptance and rejection in trading??
Nope.. You can apply these concepts for timing the PB trade like follows.
Even while timing the weird setup CPB type 2, ie. deep grinding corrective pullbacks like these..
Ufff.. Too much information, isn’t it??
My attempt here is to make you understand what I meant when I say the three words acceptance, non-acceptance and rejections with the help of the concepts impulsive and corrective swing behaviours to make your trading peaceful with sound judgement on market action. And remember, this damn thing is very important and that’s the reason why I waited to post this article to find enough charts marking the trades I have taken. I have been working on this article since February 2016 and finally succeeded to articulate the thoughts with a decent sample of examples I assume. 🙂
Even when everything is perfect from your analysis per se, there will always be a chance of failure and that’s where the money and risk management principles come into the picture. This is not something that you can learn overnight and apply directly the next day. You need to practice it rigorously to find access to the concepts when the pressure is on to make a sound trading decision.
I hope I made every point I wanted to make in this article. I know this concept is a bit vague and I hope you have learned something from this.
Be defensive and trade well.. See ya next time