The Rejection Zone Indicator can be used to help trend following traders know when to buy dips in up trends, and when to sell pull backs in down trends.
The Rejection Zone Indicator is made up of the 20 and 50 period Exponential Moving Averages. This indicator has colored shading in between these two EMAs, which acts as a nice visual. When the 20 period Exponential Moving Average is below the 50 period Exponential Moving Average, the shaded cloud will be red, and when the 20 EMA is over the 50 EMA the cloud will be green. It is called the Rejection Zone indicator, because often in trends when price pulls back to the colored cloud, it will act as an area of support or resistance.
The suggested use of the Rejection Zone Indicator is to look for long trades when the cloud is green, and once price has pulled back into the green cloud. If the cloud is red one can look for short trading opportunity when price pulls back into the red cloud.