Breakout or rejection? How to validate the end of wave C [Video]

Finding the liquidity zone is the easy part. Any trader can mark a previous high, a point of control, or a Fibonacci level. The hard part is knowing what price will do when it gets there: break out or reject? In this breakdown we apply Elliott Wave and Volume Profile to three markets — S&P futures, the Aussie dollar, and oil — and show how to read that answer in price behavior.

In short: on the ES, Wave 2 looks complete as a double combination, with a bullish bias toward a breakout of the previous high. On AUD/USD, we expect a zigzag's Wave C to reach the top of Wave A and reject, setting up a fresh low. And on oil, with higher timeframes quiet, we drop to the 5-minute chart to find the end of Wave 2, with a bullish bias toward the 92 area.

What the video shows

ES: a double combination and a return to value

On S&P futures, Wave 2 developed as a double combination and appears complete after a significant move up. The Volume Profile of the previous leg shows where the heaviest volume traded — the point of control. When price sold off below it, it couldn't continue lower and produced a strong rejection back to the point of control.

From there, price built Wave 1 and a sideways Wave 2. This week we're watching for a breakout of the previous high. But here's the key: the quality of that breakout matters. A strong break — decisive candles, clean follow-through — has the potential for Wave 3. A weak break — big volume, low result, and a rejection — could send price back into the range and possibly to the lows.

Aussie dollar: the zigzag validation

The US dollar has been strong, supported by rising yields across the curve, including the 10-year. The question on AUD/USD is whether we have a bottom or another fresh low ahead. Our read favors a fresh low — but that depends on the zigzag validation.

In a three-wave A-B-C sequence, the way price behaves when it crosses back toward the top of Wave A tells you whether it's a C wave:

• Shallow price action and small candles, with difficulty continuing higher: that's a C wave. Look for the continuation back to the low.
• A powerful, fast move up: that's a liquidity withdrawal. Not a trade. Wait for the rejection instead.

If everything goes well, we look for the fresh low — and be careful there, because it could mark the bottom of the market.

Oil: drop to a lower timeframe

Oil spent the week in a sideways consolidation, with little news from the Middle East to drive volatility. We still expect a significant move up, at least to the 92 area, with potential to break the highs.

On the 5-minute chart, Volume Profile shows heavy volume concentrated at the lower side. That means many were selling while the Market Maker was buying — so price comes up to grab their stops. That's Wave 1. Now we're in Wave 2, looking for the ABC sequence before a push back to the highs. Once in the trade, we navigate by price action at each level: book profits, exit, or hold depending on how price develops.

What the video didn't cover

Effort versus result: the law behind the rejection

"Big volume, low result" has a name and an origin: Richard Wyckoff's law of effort versus result. Volume is the effort; price displacement is the result. When there's a lot of effort and little result, someone is absorbing all those orders on the other side.

At the top of a Wave C, that means buyers are pushing hard, but a larger participant — the Market Maker — is filling every order without letting price advance. That's the footprint of distribution. A high-volume candle with a small body at a liquidity zone tells you more than any indicator.

Why liquidity withdrawal means stand aside

The video makes an important point about when not to trade, and it deserves emphasis. If price slices through the liquidity zone with a large, fast candle, that's not a rejection setup — it's a liquidity withdrawal. There was nobody absorbing on the other side, so price moved without resistance.

Fading that move means trading against the flow. The disciplined response is to skip it and wait for a new structure. Knowing when not to trade a zone is as important as knowing how to trade it.

The general rule for any level

What applies to the AUD/USD zigzag applies to any level you use: support, resistance, Fibonacci, a moving average, or a point of control. The level tells you where to look. Price behavior at the level tells you what to do. Slow arrival, small candles, effort without result: rejection likely. Fast arrival, large candles, easy progress: breakout likely.

The core idea

Liquidity zones aren't traded on their own. They're traded based on the quality of price's arrival. Elliott Wave tells you which wave is ending, Volume Profile tells you where the level is, and reading candles, momentum, and volume at that level tells you whether the wave actually ended.

That's what we work through every day in our trading room, on both higher and lower timeframes.