Shorting on Perps Below Sell Walls
Finding short entries below sell walls on perps.
Sell walls as short entries
The reduce-risk section covered taking profits before sell walls. This goes further: use those walls as entry signals for shorts on perps (e.g. Drift).
Sell walls are ripe for shorting - lower risk, high reward
Why this works
DEX sell walls are real tokens committed to sell at specific prices. That's different from CEX order books where walls get pulled all the time. For shorts, this means:
- Real resistance: Actual capital ready to absorb buying pressure, not just lines on a chart
- Clear stop levels: The top of the wall is your invalidation. Tight stops.
- Visible entry triggers: Price hitting the wall gives you a clear signal
- Self-fulfilling: Other traders see the wall too and trade around it
- Measurable quality: You can assess composition and size to gauge rejection probability
Finding the best setups
Not every sell wall is worth shorting. Here's what to look for:
What makes a good short setup
- Stablecoin-heavy: 80%+ USDC/USDT or SOL backing means real selling intent
- Big enough: At least 5% of the token's total liquidity
- Multiple sources: Wall formed from several DEXs, limit orders, and LPs -- not just one position
- Proven level: Price has rejected here before
- TA confluence: Wall lines up with round numbers, previous highs, or Fibonacci levels
- Gap below: Thin liquidity under the wall means price can drop fast once it rejects
Scoring wall quality
A simple scoring system helps you prioritize setups:
| Factor | Low Score (1) | Medium Score (3) | High Score (5) |
|---|---|---|---|
| Stablecoin % | Under 30% | 30-70% | Over 70% |
| Wall Size (% of token's total liquidity) | Under 5% | 5-10% | Over 10% |
| Persistence | Newly formed | Several days old | Weeks or longer |
| Liquidity Gap | Minimal gap below | Moderate gap | Large gap below |
| Source Diversity | Single source, or on CEX | 2-3 sources | 4+ sources |
Target walls with total scores of 15+ for highest probability setups
Two ways to enter
Once you've found a quality wall, pick your entry style:
Option 1: Anticipatory short
Enter before price reaches the wall:
- Identify Major Sell Wall: Use CLOBr to locate a high-quality wall above current price
- Set Entry Zone: Determine entry between 90-98% of the distance to the wall's base
- Place Limit Orders: Use scaled orders at 2-3 price points within the entry zone
- Stop Placement: Set stop loss 2-3% above the highest point of the wall
- Take Profit Levels: Set multiple profit targets at support levels or at predetermined percentages (e.g., 5%, 10%, 15% below entry) - with leverage, these don't need to be as far apart for a high return
Best for: Stronger walls, experienced traders who can monitor positions closely
Option 2: Confirmation short
Wait for price to hit the wall and get rejected first:
- Wait for Contact: Allow price to reach and interact with the sell wall
- Look for Rejection: Enter short after a candlestick shows rejection at the wall (e.g., bearish engulfing, doji, etc.)
- Confirm with Volume: Ensure rejection candle has adequate volume
- Stop Placement: Set stop 1-2% above the rejection candle's high
- Take Profit Strategy: Same as Option 1
Best for: Less experienced traders, uncertain market conditions, or lower-quality walls
Sizing and risk management
Shorts have unlimited downside in theory, so size conservatively:
Size by wall quality
- Score 20-25: Up to 2% of trading capital
- Score 15-19: Up to 1% of trading capital
- Below 15: 0.5% max, or just skip it and wait for something better
Other things to watch
- Wall dissolving? Get out. Your edge is gone.
- Funding rates: Highly negative funding means crowded shorts. Don't pile in.
- Scale out: Take partials at each target, not all at once.
- Time limits: If price just sits below the wall for days, consider closing.
- Macro matters: Don't short into a market-wide bull run.
Example: Shorting BONK at a sell wall
Scenario
- Current BONK price: $0.000029
- Major sell wall identified at $0.000035-$0.000036
- Wall analysis:
- Size: $2.5 million (significant for BONK)
- Composition: 80% USDC (strong selling intent)
- Sources: Multiple DEXs and limit orders
- Persistence: Present for 7+ days
- Historical: Previous rejection at $0.000034-$0.000036
- Technical confluence: $0.000035 psychological level
- Quality score: 22/25 (high quality)
Shorting Strategy:
- Entry Approach: Confirmation shorting
- Wait for price to reach $0.0000345-$0.000035 range
- Enter after first rejection candle forms
- Average entry: $0.0000348 after rejection candle
- Position Size: 2% of trading capital (high-quality wall)
- Stop Loss: $0.0000365 (just above the wall's highest point)
- Take Profit Levels:
- TP1: $0.000032 (40% of position)
- TP2: $0.000030 (40% of position)
- TP3: $0.000028 (remaining 20%)
- Risk:Reward: Risk $0.0000017 per BONK to potentially gain $0.0000068 per BONK (4:1 ratio)
Common pitfalls
Pitfall 1: Wall Breakthrough
Price occasionally breaks through strong walls unexpectedly.
Solution: Always use stops; consider using options or tight stops rather than naked shorts for major resistance tests
Pitfall 2: Dissolving Walls
Walls can diminish or disappear as price approaches.
Solution: Regularly monitor wall integrity in CLOBr; exit positions if wall size decreases by more than 50%
Pitfall 3: Funding Rate Squeeze
Crowded shorts can lead to expensive funding and short squeezes.
Solution: Check funding rates before entering; avoid shorting when funding is already highly negative
Pitfall 4: Overtrading Minor Walls
Trading every wall can lead to overtrading and losses on weak setups.
Solution: Only trade walls with high quality scores; be patient and selective with entries
Sell walls backed by stablecoins make good short entries. Use tight stops above the wall and scale out profits at lower support levels.