Swing Failure Pattern (SFP) - Key Facts
Definition:
- A Swing Failure Pattern (SFP) is a price action pattern observed in technical analysis, indicating a potential reversal after failing to maintain a new high or low.
Key Characteristics:
- False Breakout: Price makes a new high or low beyond a previous swing point but quickly reverses direction.
- Rejection: The failure to sustain the breakout signals rejection at key levels.
- Reversal Indication: Often marks the end of a current trend and the beginning of a counter-trend move.
Components:
- Previous Swing High/Low: Identify a clear swing high or low in the price action.
- Breakout and Reversal: Price moves beyond this high/low, followed by a sharp reversal.
- Confirmation: The reversal is confirmed when the price moves back inside the range of the previous swing.
Usage:
- Entry Point: Traders may enter a position in the direction of the reversal.
- Stop Loss Placement: Typically set beyond the extreme point of the SFP to manage risk.
- Target Levels: Often aligned with previous support or resistance levels, or using a risk-reward ratio.
Market Context:
- Trend Identification: Best used in trending markets to catch reversals.
- Volume Analysis: Higher volume during the false breakout can strengthen the pattern's validity.
Advantages: