Swing Failure Pattern (SFP): A Simple Guide For Trading

• A swing Failure Pattern (SFP) helps traders to stop losses above (or below) a significant swing low (or high) to generate enough liquidity to drive the price in another direction.
• Traders use it to plan their Entry & Exit points. On the contrary, they take a long position when a swing failure occurs.

When you enter the world of trading, Learning how to create a winning strategy is one of the most important things to do.

You can understand it as,

When there is an uptrend, higher highs, and higher lows are repeated. However, eventually, the price fails to accomplish a new high. On the other hand, when there is a downtrend, it fails to achieve a new low. This signals the occurrence of a pattern shift. For the pattern to be completed, the trendline must break through the previous high in a downtrend (or a low in an uptrend).

What Is Swing Failure Pattern

A swing failure pattern can be seen as a series of higher highs and higher lows, but there comes a point where the price fails to make a new high. A swing Failure Pattern is a type of reversal Pattern that can be used as a Buy or Sell Signal in a series trend.

A failed swing occurs when the Price Line and RSI line diverge. It indicates a decrease in the current market’s strength, especially when it is Oversold or Overbought.

Types Of Swing Failure

Various types of swing failures happen in the world of trading & finance.

Their types can be classified as follows:

• W Shaped
• M Shaped
• Failure Swing Top
• Failure Swing Bottom
• Non-Failure Swing
• Non-Failure Swing Bottom

How does Swing Failure Pattern help?

In a Bullish Market, the market reaches the highest possible level or the overbought limit before slipping down. Then it rises again but fails to reach the previous high, forming an ‘M’ pattern in the trendline. It is at this point that the swing failure occurs. Failure to hit a higher high in an uptrend suggests the current uptrend is failing.

 

But in a Bearish Market, it is similar but happens in reverse. When indicators reach the oversold level or its lower point, they rise and fall back to the lowest low, forming a swing failure pattern. It doesn’t hit the previous low because it rises again, including a “W” pattern.

The Swing Failure Pattern signals a trend reversal before it happens. Spotting it early on will give you a heads-up on the competition when it comes to Negotiating a trade-off that will benefit your portfolio.

The RSI swing failure introduced by J Welles Wilder in the 1970s is an excellent example of the Swing Failure Pattern. RSI helps to determine the price action’s shift and its momentum.

This concept was introduced in his book about Technical Trading Analysis. 

Conclusion

Even though the Swing Failure pattern is not always accurate, it’s a simple and efficient way to identify the weakness in a trend & a potential trend reversal. By using SFP, you can predict your trading’s Profit and loss aspects, where you should invest and not.

Traders can use this and mark their Entry/Exit indications and create a Forex Trade strategy to achieve greater profits.