#TATip Swing Failure Pattern

Seeing a lot of traders use/abuse this pattern lately, thought I'll put up a small primer.

Index:

i) Premise
ii) Identification
iii) Trading (Entry/Stop)
iv) Miscellaneous

i) Premise

The SFP is hinged on the basic idea that large players need equivalently large liquidity to fill their orders and avoid slippage by buying at the current market prices.

Once they fill their orders, price usually reverts back.

How do they achieve this?

ii) Identification

Look for key swing points (/\\ or \\/) on a chart, swing high/lows that stand out instantly.

When price breaks these points, two things will happen:-
a) Stops will get triggered
b) Breakout traders will be baited

This will create the large liquidity required.

iii) Trading (Entry/Stop)

Entry: On the close of the SFP candle (the candle that breaks the swing high/low and closes below/above)

Stop: Discretionary stop above/below the SFP candles high/low. Manually exit if price closes above/below SFP high/low.

TFs: Any (I use the 4h/1D)

iv) Miscellaneous

• Mostly applicable on BTC and large caps.

• This can also be used to identify range fakeouts.

• Check all exchanges to check if the SFP is consistent.

• Lastly: A wick below/above a low from 3 bars prior and a close above/below is
NOT an SFP.

Exhibit A

Well, this was timely.

$BTC

Update.

Although this worked out this time, it wasn't the ideal SFP due to the entry (candle close) being so far away from the swing point that was SFP'd

This would be a 0.5R trade, which warrants a pretty high strike rate.

For best SFP trades, look for small wicks.