A failure swing pattern is a reversal pattern that can be used as buy or a sell signal. When we are in an uptrend you will see higher highs and higher lows but eventually comes a point that the price does not reach a new high and it fails.
When we are in a downtrend, prices will fail to make a new low. This can be a good indicator for a change in market trend.
Failure Swing Top
A trigger line is drawn at Point (B) after it has been created after the highest peak (A). If the price breaks point B then we have a completed failure swing downwards. The sell should occur once we break point (B) on the downtrend to Point (D).
Above is an example of a non-failure swing. Prices hit a new peak at point C. The prices falls below the previous low which was point (B) hitting point (D). Our First sell signal would have occurred on the downtrend to point (D) once breaking the old low (B). Our second sell would occur on the downtrend to point (F) once breaking point (D).
Failure Swing Bottom
Above is an example of a Failure swing bottom. Prices downtrend into point (A). The price bounces back up hitting point (B) while making a slightly lower low at point (C).We have now formed a failure swing with the buy signal happing at point B1.
Non-failure Swing Bottom
Above is another example Here the buy signals are at point B1 and B2.
If you would like to have a little bit of a review to learn more on chart reading then check out some of our other posts. The first one we recommend you read is support and resistance.
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