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What Is a Swing Failure Pattern?

Swing Failure Pattern is a technical pattern in trading analysis that helps traders identify the early stages of a trend reversal. This pattern is utilized to capture the moment when the current trend begins to weaken and a new trend is forming, thus providing opportunities to enter or exit the market accurately.

Concept of Swing Failure Pattern

The Swing Failure Pattern was first introduced by Welles Wilder Jr. and is useful for traders in building profitable trading strategies. The main concept of this pattern is that the current price trend fails to form new higher highs in an uptrend or new lower lows in a downtrend. This indicates weakness in the ongoing trend and provides potential signals for a trend reversal.

Identifying Swing Failure Pattern

Swing Failure Pattern can be identified by observing the inability of prices to form higher highs in an uptrend or lower lows in a downtrend. This pattern becomes valid when price movements fail to penetrate the last higher low level in an uptrend or the last lower high level in a downtrend. In analyzing the swing failure pattern, traders also often use technical indicators such as Relative Strength Index (RSI) to confirm signals.

Application of Swing Failure Pattern

Traders can utilize the Swing Failure Pattern for entering and exiting the market. When a swing failure pattern occurs in an uptrend, traders may consider entering a sell position, while in a downtrend, entering a buy position could be contemplated. Target profits and stop-loss levels are usually placed by considering market structure and support/resistance levels.

Bullish and Bearish Swing Failure Patterns

  • Bullish Swing Failure Pattern: Occurs when prices fail to form higher highs in an uptrend. This indicates a potential trend reversal from bullish to bearish.
  • Bearish Swing Failure Pattern: Occurs when prices fail to form lower lows in a downtrend. This indicates a potential trend reversal from bearish to bullish.

The swing failure pattern is a simple and effective trading strategy for identifying weakening trends and potential trend reversals. Traders can use this pattern to make more precise entry and exit decisions and develop trading strategies that yield better profits. Although not always accurate, the swing failure pattern provides valuable additional information for traders to make better trading decisions.

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