Swing Failure Patterns (SFP) occur when price action attempts to swing above or below a price area of significance, but fails to do so and can either reverse the trend or provide a setup to trade a bounce with a good risk to reward ratio.
SFPs are also referred to as; Stop hunts and liquidity grabs.
SFPs can be found on all time frames (TF). However, the higher the TF the more significant an SFP can be.
SFPs are not guaranteed to reverse a trend entirely and may only result in a 'dead cat bounce'. Thus, one cannot trade off these alone and must have other factors of confluence to trade from.
Swing Failure Patterns (SFP) occur when price action attempts to swing above or below a price area of significance, but fails to do so and can either reverse the trend or provide a setup to trade a bounce with a good risk to reward ratio.
SFPs are also referred to as; Stop hunts and liquidity grabs.
SFPs can be found on all time frames (TF). However, the higher the TF the more significant an SFP can be.
SFPs are not guaranteed to reverse a trend entirely and may only result in a 'dead cat bounce'. Thus, one cannot trade off these alone and must have other factors of confluence to trade from.
Liquidity Areas are price areas where large amounts of trades and volume have taken place, and not had a huge impact on price.
The average trader will typically have their stop losses placed in these liquidity areas, because it seems like a safe place along with the majority of the market and their technical analysis (TA) supports this idea.
This is what separates us from the average trader, because we can get a good idea of where the majority of the markets have their stop losses (SL).
Having this insight gives us an edge and informs us to place a wider SL to avoid being hunted.
Key Points of the Lesson
UTILITY
Larger traders need liquidity to participate in the market.
Areas of heavy stop loss placement provide liquidity.
Swing Failure Patterns offer low risk and high reward opportunities.
IMPLEMENTATION
Limit orders provide liquidity from the market.
Market orders take liquidity from the market.
Larger traders need liquidity to participate ⇒ liquidity pools/areas⇒ stop loss areas.
Consolidation areas ⇒ indecisive price action ⇒ stop losses (market orders) are commonly placed at the edges.
Swing Failure Pattern = stop hunt = liquidity grab.
An attempt to take a “swing” above or below a significant high or low.
Occurs on all timeframes.
SFP on a low time frame provides nice scalp trades.
SFP on a 4h+ time frame provides possible trend reversals.
FIRST PRACTICAL EXAMPLE
TIPS & TRICKS
For beginner traders.
Wait for the price to take the high/low.
Wait for a candle close below the previous high or above the previous low.
Take profits at the opposite edge of the range, or POC if the range is big.
Compound or let the trade run as market structure changes.
For advanced traders using footprint software.
Look for trapped traders and compare volume and delta on the swing attempts.
look for demand to appear ⇒ large buying/selling imbalances combined with an increase in open interest in the reverse direction of the swing.
Look for a change in market structure.
SECOND PRACTICAL EXAMPLE
TIPS & TRICKS
Do not try to catch a falling knife, wait for all ingredients to be present.
Entering before step 3 is aggressive and very risky.
Stop loss below/above the SFP wick is correct.
TAKE HOME MESSAGE
Liquidity is needed for larger traders to participate in the market.
Swing Failure Patterns offer powerful trade entries with great risk / reward.
Do not catch a falling knife ⇒ wait for all ingredients to be present.