What it is and when it applies
This page helps you decide whether to short a push above resistance that closed back under it, or to pass. The trigger is a close under the band on your decision timeframe. The stop goes above the wick, and that distance sets the size.
On the chart, price has turned down from a marked resistance band several times. Then a candle spikes well above it and price closes back under. By the close rule in breakouts and retests, a wick that fails to close beyond the level is a rejected attempt, not a break.
The belief behind the trade is that buyers of the break are now offside and stop orders resting above the level may have fired. A spike can trigger resting orders, which is the part it gets right. It breaks where a wick is also the first leg of a real breakout, and price can close back above the band on a later candle. This page cites no test of how often a wick like this reverses.
It fits a band with a clear history, on a coin whose book your own order will not move. It does not fit a band drawn after the spike, or a chart where the context timeframe has already closed above the band.
Before you enter
The short is wrong if price closes above the wick's high. The push was then not rejected. The stop order goes just beyond that high, and a tall wick means a wide stop and a small position. Pulling the stop in to fix that puts it where the move can still run. The examples assume a buffer of 0.5 x ATR(14), an assumed example and not a rule. A wider buffer takes a bigger move to reach and shrinks the position, and a tighter one does the reverse.
This manual's house constraints are a planned loss of 1-2% of the account per trade and a 3x maximum leverage. They are choices, not a recommended allocation, and less, or no position, is always allowed. Sizing inputs:
- Account risk: the planned loss in cash, 1-2% of equity or lower.
- Entry price: the assumed fill, under the band after the close.
- Stop price: the wick high plus the buffer.
- Cost allowance: a per-unit amount for fees and slippage added to the stop distance, plus funding for the planned hold. The examples assume 0.3 per unit, an illustrative figure (trading costs and liquidity covers it).
- Leverage cap: the leverage setting, and all open position values plus this one over account equity, 3 or less.
- Liquidation distance: the ticket's estimated liquidation price, above the stop for a short. If the gap is not wide, lower the leverage setting.
Units = planned loss / (stop minus entry, plus allowance), rounded down (position sizing has the sum). Units x (distance + allowance) is the planned loss if the stop fills at its price. A gap, slippage or funding can make the realised loss larger.
For arithmetic only, assume a 10,000 account, a planned loss of 1%, or 100, and a resistance band from 100 to 102. A 4-hour candle spikes to 106 and closes at 99. With ATR(14) at 2 the buffer is 1, so the stop is 107. Entry at 99 is 8 away, 8.3 with the allowance. The size is 100 / 8.3, about 12.05, so 12 units, worth 1,188, or 0.12 of the account. The planned loss with costs is 12 x 8.3 = 99.6, and costs are about 4% of it.
Conditions
Each of these must be checkable on the chart.
- The band is marked and dated before the spike, with three or more separate touches, a common convention.
- The spike clears the band's top edge by a distance you fixed in advance. For arithmetic only, assume 1 x ATR(14). Small pokes do not count.
- The spike candle, or a later one within a window you fixed (assume two candles), closes below the band's lower edge, with no close above the band's top in between. A close inside the band is not a rejection. The wick high for the stop is the highest high from the spike through that close.
- The context chart has not closed above the band (multi-timeframe analysis sets out the two charts).
- There is room: the reward to the next support band, after costs, passes a test you wrote before the trade. This manual sets no minimum ratio, and risk to reward gives the break-even share to compare against.
The volatility scanner lists coins by recent movement. The manual route is to mark the band and ATR(14) on the chart.
Reasons to pass
Passing is a valid result. Pass when:
- the band has fewer touches than your rule, or you drew it after the spike
- the wick is shorter than your fixed distance
- the close is inside or above the band, or comes after the window
- the size the stop allows is below the exchange minimum, or the minimum your plan names
- costs come to more than one fifth of the planned loss
- the reward to the next support fails your written test
- the book near the band is thin enough that your own order would move it, or the context chart has closed above the band
Entry
Entry on the rejection close
The trigger is the rejection close above. Place a limit order at or just above that close, or a market order if getting in matters more than the fill price. The stop is a reduce-only stop-market buy above the wick high plus the buffer. A stop-limit with its limit above the trigger caps the fill price but can sit unfilled in a gap (order types explains).
This page reads the spike and the close on the same decision chart. A close back under the band on a lower chart, inside a higher candle that is still open, is not the trigger here. A trader who wants that earlier entry makes the lower chart the decision chart and re-marks the band on it, as multi-timeframe analysis requires, with the stop above the highest high so far.
Entry on the failed bounce
Inside a window you fixed (assume 10 candles) after the rejection close, a candle trades up to within a distance you fixed of the band's lower edge (assume 0.5 x ATR(14)), or into the band, and closes back under that edge. Short near that close. The stop stays above the same wick high, so the entry is higher and the distance shorter. Recalculate from the new entry, and drop the plan if the window ends or a candle closes above the band's top.
Execution assumptions
Assume a limit order that fills at its price, 0.3 per unit for fees and slippage, and a stop-market that fills at the next available price. If price falls away without a fill, do not chase, because the stop stays put and the reward shrinks. Cancel the order if price trades above the wick high first.
Hypothetical walkthrough
Hypothetical walkthrough. Invented prices and an invented outcome, chosen to teach the decision. Not a recorded trade, and not evidence of how often this setup works.
The reader writes the plan before the order: if a 4-hour candle spikes above 102 by at least 2 and closes under 100, short 12 units near 99 with a stop at 107. The planned loss with costs is 99.6. The next support is 88, so the reward after costs is 10.7 against 8.3, about 1:1.3 if every unit closes there.
Now change one fact. The wick reaches 112 and the close is 99. The stop is 113, 14.3 away with the allowance, so the size is 6 units. The reward to 88 after costs is 10.7 against 14.3, about 1:0.75, so on all-or-nothing arithmetic the target must be reached about 57% of the time to break even. The reader's own test, written beforehand and not a rule of this manual, says pass if the reward after costs is smaller than the risk after costs. The pass is logged with its reason and no order is placed. The outcome was chosen to show a clean trigger ending in a pass because the stop was too far for the room below.
Exits
Stop. Keep the reduce-only stop above the wick high plus the buffer. A decision-timeframe close above the wick high means the idea is wrong: close by hand, then cancel the order once you are flat. The order stays as the backstop while that close is pending or you are away.
Taking profit. The first target is the next support band below, marked before entry. Close part there and write the rest of the plan before the order (taking profit covers partial exits and the R arithmetic). After a partial, resize the stop to the units left. Once the first target fills, the stop can move to entry or just above the latest lower high. It only moves toward price.
Ending early. Write any earlier exit before entry, for example closing if price closes back above the band's top and stays there for a number of candles you fixed.
Common pitfalls
- Shorting the wick before the close. The candle can still close back above the band.
- Putting the stop at the band. The band is inside the wick, where the idea is still alive.
- Shrinking the stop to get size. Take the smaller position, or pass.
- Re-entering without a new plan. A second short after a stop-out needs its own stop and size, and it adds to total planned loss.
What this cannot tell you
- Whether this wick is a trap or the first leg of a real breakout. They look the same until later candles print. The close rule decides what you call it, not what price does next.
- How far price falls, or whether it falls at all. The support band is a reference, and a band can fail.
- Who is trapped. Volume and open interest do not show which side of the book is offside.
- Where the stop fills. A fast market can fill it past the trigger and make the realised loss larger.
Questions
Is a failed breakout wick the same as a bull trap?
The words overlap. A bull trap is the story told afterwards, that buyers were caught. The wick and the close back under the band are what you can see before you act.
Should I short the wick itself?
This page waits for the close. Until it prints, the candle can still finish above the band and the wick high can still rise.