Trading Failure Swing Pattern | Forexlive


This article is devoted to a particular technical analysis pattern in Forex and the stock market that can be found on a good half of the trend reversals and corrective movements from M1 to MN. However, due to this frequent emergence, the main task of a trader is to distinguish between a Failure Swing that will bring him a profit with more than 50% probability and a mock Failure Swing.

Swing Failure Description and Examples

A bearish Failure Swing is a double top, with the second peak lower than the first. A bullish Failure Swing is a double bottom, with the second bottom being higher than the first.

Here are some simple examples:

The idea of ​​the pattern is that the second, shorter part of the pattern demonstrates such low market interest in the previous move that market participants don’t even want to test the edge of the first peak or trough.

Nevertheless, classically speaking, an uptrend is considered in action when its highs and lows increase consecutively; similarly, a downtrend is considered to act when the lows are decreasing one after the other. However, when a failing bullish swing appears with an increase instead of a decrease, it means that the downtrend is at least slowing down.

And when the price crosses point 2 from below, the trend is considered to be up. With a bearish Failure Swing, the situation is the same: when the low point is crossed by the top, the trend is already considered to be descending. Of course, all this is only hypothetical, both in Forex and in the futures or stock markets. Any trading signal is hypothetical. The task of the trader is to realize the probability.

Requirements for a Highly Probable Failure Failover

For a Failure Swing to be able to not only slow down the movement in which it appeared, but also to really push the price in the opposite direction, the pattern needs time. In particular – no less than 30% of the time it takes for the previous uptrend or downtrend to develop.

However, time can work on either generating force for a reverse move or mundane consolidation to go in the previous direction. Thus, a highly potential pattern must demonstrate changing dynamics of price movements.

For a bearish failure swing, the price should fall as quickly as possible from the high 1 to the low 2, while the tilt from the low 2 to the high 3 should be as slow as possible. And from the 3 low, the price should start falling again very quickly and confidently, closing the candlestick on the working TF below the 2 low. As soon as this happens, a bearish failure is considered complete.

For a failing bullish swing to have high potential, the price must also rise from point 1 to point 2 as fast as possible, while the decline from point 2 to point 3 must be very smooth. From point 2 to point 3, the price should rise sharply, confidently closing the candlestick above point 2. After that, the bullish swing from failure is considered complete as price movement follows below a classic uptrend.

In most cases the angles of lines 1-2 and 2-3 will be equal often the trend reverses at line 2-3. However, the 2-3 line should never have a sharper angle than the 1-2 line. And from point 3, the price should always go confidently in the target direction and always at a steeper angle than the 2-3 line.

Buy signal

The signal appears as soon as you notice that a pattern with high potential is completed. Enter a buy position as soon as the candlestick closes above the 2 point level. However, if the candlestick closes above the 2 point level, place a buy limit order a little higher than the broken top, because in high potential failure swings, the price rarely goes lower. Example of a buy signal:

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sell signal

It appears as soon as the candlestick closes below the level of point 2 of the signal pattern. If the candlestick closes deep below the dot 2 level, you can place a sell limit order a few ticks below or at the dot 2 level. Sell signal example:

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Stop Loss and Take Profit

Trading through the failure swing, the initial stop loss should be placed behind point 1. If you are selling, pay attention to the spread. The SL may be moved past new extremes as price approaches Take Profit. While the trader should not wait long, moving the SL towards breakeven, using each new extreme, when trailing the position, he should always keep in mind that the market will need time to consolidate his powers for a new movement.

As for the TP, the trader can do without it, using his position tracking skills. However, when trading Forex or the futures market, I would recommend using a Take Profit. I checked the EUR/USD 14 month chart for failure swings that could be used and decided that on H1 I would not have placed any TP at all if it were to be too big than the SL . As for trading Failure Swings on the same pair, M5, over 11 months, I decided that an optimal TP should not exceed 3 SL sizes. You can also choose the TP size according to your experience.

However, in the stock market, trailing positions can be more effective than a hard TP.

money management

Failure of Swings trading, the trader can choose between risking a fixed percentage of the deposit or risking the same lot. I assume that any trading signal has the same chance of success and failure, that’s why I recommend risking a fixed percentage of the deposit. It shouldn’t be more than 2%, and when you’re still learning, no more than 1%.

Exchange example:

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I did a thorough study before writing this article and concluded that trading Failure Swings can bring profit. However, for this probability to become real, the trader must choose a comfortable TF and be very picky, choosing candidates for profitable signals. Thus, they will minimize the risks.

By the analytical department of RoboForex.


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