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The failure swing pattern is a type of reversal pattern that can be used as buy or sell signals. In an uptrend, we see a series of successive higher highs and higher lows but there comes a point when the price fails to make a new high.
In a downtrend, prices fail to make a new low. This will make us aware that there could be a change in pattern.
Failure Swing Top
In the diagram below we have a failure swing top:
We draw a trigger line at the first trough (B) created after the highest peak (A). If the prices continues to break below this line where the previous low is (B), we have a completed failure swing downwards. The sell signal occurs at this break of this swing level.
Non-failure Swing
Here we have a case of a non-failure swing. Prices rally to a new high, peaking at point C. Prices then fall below the previous low of point B down to point D. The first sell signal is the violation of this previous low B. If you prefer you could wait for a failure swing confirmation when prices violate the previous low, point D.
Failure Swing Bottom
In this scenario, prices are in a downtrend to point A. Then prices fail to make a new low, making a slightly higher low at point C and moving higher by violating point B. We have a failure swing completed upwards. A buy signal occurs at point B1.
Non-failure Swing Bottom
In this scenario, a buy signal is given at point B1 and at point B2.
