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Swing Failure Pattern

The Swing Failure Pattern (SFP) is a pattern that appears when the high or low of the previous swing is falsely broken. SFP arises when large market participants take advantage of liquidity pools of retail traders' limit orders to fill their positions, resulting in retail traders' failure to retest swing zones. To find SFP patterns, traders look for areas with obvious trend and correction testing previous highs/lows, where retail traders often place stop-loss orders and institutional traders can find concentrations of liquidity. Successful use of SFP typically involves dynamic stop-losses around 1/4 of the daily Average True Range value and targets in the 1:1 to 1:2 risk-reward range.

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951 views6 pages

Swing Failure Pattern

The Swing Failure Pattern (SFP) is a pattern that appears when the high or low of the previous swing is falsely broken. SFP arises when large market participants take advantage of liquidity pools of retail traders' limit orders to fill their positions, resulting in retail traders' failure to retest swing zones. To find SFP patterns, traders look for areas with obvious trend and correction testing previous highs/lows, where retail traders often place stop-loss orders and institutional traders can find concentrations of liquidity. Successful use of SFP typically involves dynamic stop-losses around 1/4 of the daily Average True Range value and targets in the 1:1 to 1:2 risk-reward range.

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Amoni
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Swing failure pattern guide

@pika_mrnv • May 02, 2020

crpt ♤ mrnv.

A huge number of traders continue to indulge


themselves with the thought that bitcoin is impossible
to trade within the day, since all these stop-outs do not
allow to enter and exit the market normally.

On the other hand, these difficulties help to study the


functioning of the institutional order flow and the SFP
pattern in particular.

What is SFP?
Swing Failure Pattern is a pattern that appears when
the high or low of the previous swing is falsely broken.

SFP arises as a consequence of large market participants


taking advantage of a pool of liquidity to fill their
positions. Thus, retail traders fail in retesting swing
zones, and institutional traders successfully enter the
market.

To understand how this pattern works, you need to


understand how the order flow works, or in other
words, how do institutional traders enter the market?
We have already discussed this topic in our 
article , so we will recall only the basic concepts.

Let's conditionally divide the main market participants


into two types:

Retail trader - individual trading on a personal account,


a small amount of the deposit.

Institutional trader - individual trading with funds of a


fund / firm / prop company.

Reminder: there must be a seller for every buyer and a


buyer for every seller.
Funds trading in large volumes cannot afford to buy “at
the market”, because this will destroy the glass, and
they will receive an extremely unfavorable price. The
main problem is filling out your application. Therefore,
traders trading in the fund need to construct liquidity.

Liquidity pools

To fill out their applications, large traders need to create


so-called liquidity pools. We know that liquidity =
volume, the more liquidity, the easier it is to fill out an
order to buy / sell at the required price.

How can funds construct liquidity?

Pending limit orders are unused liquidity. They are


triggered when the price crosses a certain area.
Buy orders = Short liquidity

Sell ​orders = Long liquidity

In fact, everything is simple. If everyone is buying, it is


easy for a whale to sell their positions to you. If no one
buys, then sales will simply lower the price, and the
whales will lose profit / fix a loss.

How do I find liquidity pools?

Where is the favorite place for stop losses for technical


traders?

• Below the lows

• Above the highs

• In a flat behind obvious levels

Retail traders are taught to buy / sell breakouts of levels


and trend lines. This is a favorite place for large
institutions. Free liquidity is concentrated in these
places.

SFP pattern formation rules


The choice of a timeframe for trading with SFP is highly
individual, since the pattern is formed on any
timeframe. Retail traders are attracted by the extremely
clean swing up / down movement and with each new
round more traders are joining it. Accordingly, their
stop orders are located in approximately the same place.

The reason for entering in this situation is the closing of the false
candle above the lows.

An obvious trend and correction with a well-defined


testing of the previous low / high will become the main
condition when looking for an SFP pattern. If several
extreme points are formed on the chart, then the
pattern candle should ideally break through all previous
values, or the nearest extreme.
Stop loss and take profit values ​for
SFP
It all depends on the volatility of the asset and the
measure of risk that your trading system will pull. For
successful use of the SFP pattern, a dynamic stop loss is
well suited, the size of which is determined using the
ATR indicator. If you are trading on an hourly
timeframe (1h), then a stop of 1/4 of the daily ATR
value is suitable for BTC.

For violas, the foot size will vary. It is important to keep


in mind that trading in SFPs does not imply long-term
holding. The average risk / reward for a trade is in the
range of 1: 1–1: 2. The main profitability of the pattern is
achieved due to the win rate, which in some cases can
reach 80%.

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