Swing Failure Pattern - How does it work?
Swing Failure Pattern is a false sample of the level of the maximum or minimum of the previous swing. The main popularizer of this pattern is British trader Tom Dante, his articles you can find at our forum.
The effectiveness of SFP is such that after mastering the skills of error-free definition of this setup, many traders use it as a full trading system.
SFP: How is the pattern formed and why does the pattern work?
The SFP arises from a failed attempt by market participants to form a new swing-hai or swing-low. The failure is due to the desire of a pool of large speculators or investors to take advantage of the liquidity accumulation of deferred trial warrants (Buy Stop, Sell Stop) and Loss Limit Orders (Stop-loss) to enter the position.
A swing, very similar to a classic trend, leads to the placement of a large number and a large volume of deposits in a relatively narrow price range. Traders are attracted to the "clean" move up or down, they put up warrants in almost one place, just above the maximum or minimum, in the hope that such a "drawn" trend will certainly get continued.
The example described for the growing trend is shown in the picture below. The obvious upward movement of the currency pair leads to a desire to "jump" into the market, putting a warrant just behind the nearest high. There will also be feet of bidders, who have now become obvious to them, in a position against the trend.
Rupee players are interested in the aggregate liquidity that forms in this zone once the warrants hit the broker 's servers. They see this cluster as a guaranteed opportunity to enter the market with a large volume at a time, without affecting the exchange rate of the asset. The entry price will be known to the large player in advance, due to the visible volumes on the broker server and in the cup.
After waiting for another swing-hay and allowing the tail of the candle to perform all the delayed warrants and feet so that the volumes "enter" the market, speculators will make a "mirror" deal on the market.
At the same time the candle of false breakdown may not differ from any other average candle, - the task of market makers to absorb volume without changing (deteriorating) the price during the transaction.
After the operation of deposits on the market, the following situation arises: the positions of shorts are knocked out on the foot, bulls are already in the market and cannot prevent large players from "selling" the stopped growth of the rate lower, which is provided by the profile according to the SFP pattern in 90% of cases.
A false sample often results in lost profits and an additional stop loss. The SFP pattern demonstrates how you can earn on it with a probability of up to 90%. The figure shows that traders should pay their attention to it.
You can understand the mechanism of pattern occurrence and various variations on the topic of profit increase from the translations of Tom Dante 's articles and webinars posted on our forum. The only thing to leave unchanged is the stop loss definition rules. It performs a "safety role" in repeated tests.