Rejection Candle Pattern: What It Is & How to Identify It

Understanding the Rejection Candlestick Pattern

At its core, trading is about understanding people, and the rejection candlestick pattern is one of the clearest ways to see market psychology unfold right on the chart.

This pattern appears when the price makes a strong move in one direction, only to encounter firm resistance and reverse before the session ends.

When this happens, it indicates that a key price level was actively defended and that the balance of power may be shifting.

The Anatomy of a Rejection Candle

A rejection candle leaves behind a clear “footprint” of what traders were thinking and doing during that period.

To spot it correctly, you only need to focus on three simple but powerful components:

The Long Wick (Shadow)

This is the first thing that should catch your eye.

The wick shows where the price traveled but failed to hold, reflecting a clear rejection of that level.

A rejection candle often has a wick at least twice the length of the real body, and the longer the wick, the stronger the rejection usually is.

The Small Real Body

The real body tells you where the price opened and closed.

When the body is small relative to the total range, it means that despite all the intraday drama, the price ended up close to where it started.

That’s a classic sign of indecision and a failure to follow through.

The Wick Location and Direction

Where the wick forms matters, a long upper wick shows rejection of higher prices and often hints at bearish pressure.

A long lower wick, on the other hand, signals rejection of lower prices and suggests bullish defense stepping in.

The Psychology of Price Rejection

Beyond its visual structure, the rejection candle tells a deeper story about the shifting balance of power between buyers (bulls) and sellers (bears).

The Battle for Control

During the formation of a rejection candle, one group of market participants initially gains control and pushes the price toward a new high or low.

At first, the move looks convincing, often attracting breakout traders.

Momentum appears to be building in one clear direction.

When Price Meets Strong Resistance

As the price reaches a critical level, it suddenly encounters strong headwinds.

Buyers may see higher prices as too expensive, while sellers may view lower prices as too cheap.

This lack of interest at extreme prices causes the initial move to stall.

The Failed Move and Session Outcome

The opposing side then overwhelms the initial push and drives the price back toward the opening level.

By the close of the session, the breakout attempt has completely failed.

The rejection candle visually marks who ultimately won the battle for control.

Smart Money and Liquidity Hunting

Institutional traders, often referred to as smart money, play a significant role in forming rejection candles.

Because they trade large sizes, they require significant liquidity to enter and exit positions.

This need for liquidity shapes how prices move around key levels.

Stop Hunts and Liquidity Pools

Rejections frequently occur during liquidity grabs or stop hunts.

Algorithms target liquidity pools where retail traders cluster stop-loss orders.

These areas are commonly found just above swing highs or below swing lows.

Order Absorption and Sharp Reversals

By pushing price beyond these levels, smart money triggers stop orders and captures the required liquidity.

Once those orders are absorbed, the price reverses sharply.

The long wick left behind confirms order absorption and signals institutional intent at that key level.

How to Identify a Rejection Candlestick Pattern

Identifying a rejection candlestick pattern requires more than recognizing a candle shape.

The quality of the signal depends on its structure, location, and surrounding market context.

The following three factors are essential when evaluating whether a rejection candle provides a high-probability trading signal.

The Wick-to-Body Ratio

The first element to assess in a rejection candlestick pattern is the relationship between the wick and the real body.

A valid rejection candle typically has a wick at least twice the length of the body, indicating that the price moved aggressively in one direction before being decisively rejected.

This imbalance reflects a failed attempt to sustain higher or lower prices, which is a core characteristic of rejection2:1 Minimum Ratio-based setups.

A high-probability rejection candlestick typically features a wick that is at least twice the length of the real body.

Wick Length Significance

Generally, the longer the wick relative to the body, the stronger the rejection.

A very long lower wick, for instance, indicates that bulls aggressively absorbed selling pressure, while a tiny body shows they maintained control by the session's end.

Body Placement

The small body should be tucked away at the opposite end of the rejection wick.

For example, a bullish rejection should have a small body near the top of the candle’s range.

Identifying Key Areas of Value

A rejection candle that appears "in the middle of nowhere," meaning it is not touching a known technical level, is often a false signal or simple market noise.

To be meaningful, rejections must occur at Areas of Value:

• Support & Resistance: Horizontal zones where price has historically reversed.
• Dynamic Levels: Rejections off the 50-period or 200-period moving averages often signal that a trend is resuming.
• Fibonacci Retracements: Key levels such as 38.2%, 50%, and 61.8% serve as psychological barriers where rejections often occur.
• Trend Lines: A price "poking" through a trend line, followed by a quick close back inside, creates a powerful rejection signal.

Confluence between these levels and a rejection candle significantly improves signal quality.

Essential Types of Rejection Candles

These patterns visually represent shifts in the balance between buyers and sellers, offering valuable clues about potential reversals or trend continuation.

Common examples include the Hammer, Shooting Star, Dragonfly Doji, and Gravestone Doji, all of which highlight unique aspects of market psychology.

Bullish Rejection Candle Meaning and Variations

A bullish rejection candle represents a rejection of lower prices.

It shows that sellers attempted to push the market down, but buying interest emerged at lower levels, forcing the price back toward the opening.

This behavior often signals a potential upside reversal or the continuation of a bullish structure.

The Hammer

The Hammer is the most common bullish rejection pattern and typically forms near the bottom of a downtrend.

It features a small real body near the top of the range and a long lower wick.

This structure indicates that the price sold off early in the session, but buyers stepped in decisively. From a psychological standpoint, it suggests that value is perceived at lower prices, often trapping late sellers as prices recover.

The Dragonfly Doji

The Dragonfly Doji is a more extreme form of bullish rejection.

The open and close occur at the same price, usually near the session high, creating a long lower wick and almost no real body.

This pattern signals near-total rejection of lower prices.

When it appears at key support levels, it often indicates that selling pressure has been fully absorbed and downside momentum is exhausted.

Bearish Rejection Candle and Variations

A bearish rejection candle signals rejection of higher prices.

Buyers push the price higher, sometimes breaking recent highs, but strong selling pressure pushes it back down, signaling a potential downside move or reversal.

The Shooting Star

The Shooting Star forms near the top of an uptrend and has a small real body near the bottom of the range with a long upper wick.

It shows that buyers failed to maintain control after pushing price higher, while sellers took over near the highs.

This pattern often serves as an early warning of weakening bullish momentum.

The Gravestone Doji

The Gravestone Doji forms when the open, close, and low occur at the same level, leaving a long upper wick and flat base.

This candle represents a complete rejection of higher prices, as the close erases all intraday gains.

When it appears at significant resistance, it is widely regarded as a strong signal that a trend may be nearing its end.

Common Pitfalls and Tips for Success

Even though the rejection candlestick pattern is a powerful analytical tool, it is often misused. Most failed trades don’t come from the pattern itself, but from how it is applied.

Being aware of the following pitfalls can significantly improve consistency.

Avoid Trading Rejection Candles in Isolation

One of the most common mistakes is trading a single rejection candle in isolation.

A long wick by itself does not guarantee a meaningful move.

Rejection candles become reliable only when they align with confluence, multiple factors pointing in the same direction.

Useful confirmation tools include:

• RSI to identify overbought or oversold conditions
• MACD to confirm momentum shifts
• Bollinger Bands to assess volatility extremes

When a rejection candlestick pattern aligns with one or more of these tools at a key level, the signal carries far more weight than the candle alone.

Respect Higher Timeframes

Another frequent error is over-relying on rejection candles on very low timeframes.

While they appear more often on intraday charts, their reliability decreases significantly.

Rejection candlestick patterns formed on Daily or Weekly charts tend to:

• Reflect stronger institutional participation

• Be less affected by market noise

• Produce cleaner follow-through

Lower timeframes can still be helpful for entries, but the rejection itself should ideally be identified on a higher timeframe for greater confidence.

Conclusion

The rejection candlestick pattern provides a clear view into market sentiment by showing where the price was tested, rejected, and pushed back by strong opposing pressure.

Its effectiveness comes from focusing on quality over quantity, trading only those rejections that form at major support or resistance with proper confirmation.

Like a compressed spring, the stronger the rejection (longer wick), the greater the potential for a sharp move in the opposite direction.