Profile and Flow Series: Swing Failure Trap Setup

Alright guys, what's going on? This is Ryan, AKA Kenner Clark, and in this video we're going to be talking about the swing failure pattern, sometimes referred to as the failure swing. So before you watch this video, I suggest you watch the video on liquidity pools because that'll be a good primer to why this concept works. So a swing failure pattern is when the market breaks a significant high or low. Alright? Only to reverse and close back within the level. If we're talking about a swing high, price will come back above the swing high and then close back below the swing high. If we're talking about a point market structure, such as a swing low, price will come below the swing low and then close back above it. So the market breaks a prior significant portion of market structure, or rather the price breaks a prior significant portion of market structure. So these are significant because swing points are typically where we will find liquidity pools. Okay. Because these are going to be areas where traders either are going to be entering based on a breakup or exiting based on a breakup or a combination of both. So if you think of a swing high, for example, swing highs, on the other side of them you'll typically find longs looking to enter into a breakout. So we'll have buy stops, you'll have longs that will be manually entering and then you have shorts that will be looking to close out. So you'll have short stops above that as well. So it's a bunch of buy side liquidity. Now the same thing can be said as for swing lows, rather for swing lows. So towards the bottom of a swing low or below a swing low, you'll typically have stops for longs that are currently in position, sell stops for any shorts that are looking to take advantage of a breakout. And again, you'll have traders that are looking to jump that are on the sidelines into breakout shorts at that point as well. So when price comes through this area, you have a lot of sell side liquidity. So there's a significant amount of selling pressure. So for anyone who is larger, who's trying to gather that liquidity and get in a position, this is an opportunity to take advantage of that location. So again you can see how this ties into the liquidity pools video. So what we want to see though at these swing highs and swing lows is not, for example, just traders closing out positions. So at a swing high, what we want to see is buyers aggressively buying through the high. At a swing low, we want to see traders aggressively selling through the low. Alright? Not just Closing out positions, we want to see that towards the swing low, for example, that there are a bunch of traders that are say they're sidelined, entering in aggressively, trying to short the breakdown or take advantage of a breakdown. And at a swing high, the same thing, buyers aggressively trying to buy a breakout. So we need to see trap traders at these points because that is going to be what ultimately fuels the move in the opposite direction. Because once the market closes back through the level, these traders will be offsides. Okay, so what we want to look for is for swing failure patterns at highs. Okay? We want to see a very high positive delta. Okay? So buying imbalances, positive delta, heavy volume through it, indicating a ton of buying activity. And at the lows we want to see a very negative delta. So very aggressive selling through the low. Alright? High volume and so forth, selling imbalances, indications that we have a lot of selling at the low to indicate that there are potentially trapped traders now at the low. Alright, so these swing points need to represent a significant level within current structure. Okay. So again it helps if you're on the higher time frame, the levels that draw your attention. So on the lower time frames these should be taken with less weight. Okay. And to assume that the probability of follow through is going to be considered, I guess a little bit weaker than if it was on a higher time frame. So you have to consider the overall trend. Okay. And again, if it's on the lower time frame, the probability of it following through is going to be largely dependent on the higher time frame trend. So higher time frame, way more significant. Okay, lower time frame still useful if we're talking about taking advantage of some lower time frame scalps. So before we look at any chart patterns, let's just take a look at what I'm trying to indicate as for breaking the low. And again, we cover this in liquidity pools, but breaking the lower, breaking the high. Alright, so hopefully everyone watched the liquidity pool video and will understand this now. So just to draw a quick diagram before we look at a few charts, So a significant swing level is something like this. Okay, so you have a swing low here, for example, let's say the price came from below. So here you likely have a ton of long stops. You have anyone who's currently sidelined is looking to take advantage of a breakdown. Maybe at this point, let's say if price came back up to this level, you would have shorts that would be looking to take advantage of a breakdown here. So you have all this liquidity right here of traders looking to sell either aggressively selling or getting out of position. So there's a ton of liquidity here for anyone who is looking to buy. So a swing failure pattern, especially on the higher time frame, is when we come down below the level and we close back aggressively above the level. The point is though, not only did we break down through the level, but we broke down through this level right here, which in this case, if we're coming down with a ton of aggressive selling only for price to come back above the level, and you would want to see something like a retest of the level and you want to be certain that not only do we close back above the level, but that there are some type of trap traders down here. So in this case, if price came down below a low, we know that there's likely a lot of aggressive shorts who look to take advantage of a breakdown at this low.

And at this point, if they're in position here and price comes back up here, they're currently trapped in position. So not only does any larger participant get to fill their bag right here, but once price comes back above this level, these shorts are fuel for the move to the upside. Because once they are pressured, they squeeze. The same thing can be said at the highs. So for example, liquidity pulled at the high. Say that this is a weekly chart and we say come down, up, down. Price is approaching through this level. So at this point any shorts are covering, so they're buying. And then you also have aggressive buyers through this level as well. They're looking to take advantage of any breakout. Okay, now any larger participant right here can gather all this liquidity. And if we move price back through this level and close again through this level or through this high, any aggressive buyers up here are now trapped in position.

They're trapped in position and once they're pressured, we have a long squeeze. So this is how the swing failure pattern concept works. The idea is that not only do you want to have a close decisively back through the level, but you want to see that at these extremes. So at the low, for example, when we close through right here, you want to see aggressive traders, okay, aggressive sellers. The same thing can be said for a high. So breaking through a high, major swing point in market structure. Breaking through here, you want to see a ton of aggressive buying. So now let's look at a few examples and look at the corresponding delta for these examples as well. Alright, so here's a great example of a swing failure pattern on Bitcoin. So you'll notice that there's something in common with the swing failure patterns, the areas where they occur typically represent the sort of areas where traders, if they're long, we're approaching a low, they represent sort of these oh crap areas. Okay, so here's the low in market structure. Traders see this aggressively approaching the low and, and it's that oh crap moment of do I puke my position? Do I let go of my long? Because the market is just going to essentially pass right through this low. Again, more often than not, what we'll see is when the market aggressively moves down to a low. So right here, an aggressive move to the low. More often than not, we see a bounce when this occurs. It's when the market kind of slowly grinds towards a low or slowly grinds towards a high that we typically see either the low or the high giveaway. So here's a great example on Bitcoin of a swing failure pattern. On the four hour chart here we have the low. So again, all eyes on this. Anyone who is currently long likely has a ton of stops below here. Anyone who's looking to short is paying attention to this area. So what do we see? The price comes all the way back down to this area, aggressively dumps into this area and then immediately comes back above. And you can see exactly where it closed and retested is above the low of this line. So again, if you can't see that clearly right here, okay. Is right where price came back above, retested and successfully closed above. So in this case, you have clearly evidence that there is a ton of buying pressure down here. Price aggressively came into this low. All right, buyers were able to push this above this low. This was a major inflection point, a major decision point for a lot of participants. And yet price closed it back above this level. So if anyone was looking to long, you could wait for something like a one hour confirmation, a one hour candle, say through the previous high. So this candle right here. All right, a one hour candle through that. At that point you could put something like a stop below this wick or, or this wick. But the idea is that now some traders will manually stop out of these positions. So they'll do something like monitor it. But the idea is that we came below the low, aggressively closed back above it, and now these positions down here that are trapped are going to be squeezed as price presses upward. So a lot of the times traders will use some type of trigger point and it'll be based on one of the preceding candles before the breakdown, or the candles that we came back up and closed above with. So just to draw this exactly these two candles right here, you typically see that traders will enter in at a confirmation of this and then place their stop right below. Now the argument is that if price came below this area aggressively closed back above at this point, you don't want to go back down to this low. So some traders will place their stop here, okay. Some will place a little bit tighter. Right, right here, okay? The argument is still the same, or rather the point is still the same. At a break of this low and a successful close back above. The last thing you want to see is price come down and test this again, because at this point now you have more stops. And if you didn't trigger all the stops below here at this point, you might have something like cascade. You trip this first period of stops, the next one, and then it gets into some of the higher time frame position trader stops that might have a little bit more distance from the current price action. The idea is still the same. Price aggressively comes into a low. Here's the swing low previously in market structure. And the thing that we want to look for is the aggressive selling. So aggressive selling and high volume. So right here you can see there are a ton of imbalances. And by a ton, I mean there's high volume imbalances rather. So high volume through the low right here, high volume indicated by the dark red high volume right into the low. So if we just include this entire area, high volume into the low. So aggressive selling, okay, you can see that the imbalances are down here. The volume begins to taper off and then we have a little bit more buying action coming. Okay, so still aggressive selling. But finally, what do we have on that confirmation candle through? And if you just visualize this, we came down aggressively sold, still some aggressive selling. But now we have aggressive buyers stepping in. So aggressive buyers stepping in close above this candle, which is somewhere right here, close above this level. And the fireworks are lit. This is a good example of a swing failure pattern at a low end market structure. Let's take a look at another one. Here we have another swing failure pattern at a high. So again, the area where your eyes are immediately drawn to right up here, this is your high point. And I say, why is it important, rather, why is it important that your eyes are immediately drawn to this? Well, let's say that you're currently in or rather looking for a long price is kind of meandering its way down to low. Again, approaching this and you might consider that a break of this high. This is a Higher time frame chart. This is a daily chart. This is USD jpy. So a break of this high might look like a good long setup. Because in this case, you know, you break the high, you break out. All right? Sky's the limit. So there are buy orders right above here. Okay? So buy orders right above this high. Market buying, their traders are going to be aggressively entering in manually. All right? Anyone who is currently short from here, they're likely going to be looking to get out of position. Okay. Even if they're short from lower. So say they're short from down here, maybe they'll use this swing high as their anchoring point. So the idea is that there's all this liquidity on the other side of this point because again, this is a major inflection point. So what happens, as you can see, put this high in over here, come up to test this high, and immediately we come back down below this level and have an aggressive close back through the level. So in this case, this is a daily chart. Your confirmation would be this candle close right here. Okay. Confirmation candle close right there, Right back into this level. So candle close aggressively back below this level, right into this previous structure. And in this case, you still have to deal with this low right here. So it's not like you could assume that this is going to immediately reverse, but at least you have a stop that is clearly placed above this high. Some traders might place it right above this reversal candle. Okay. And your target would likely be at least these lows. Okay? So that is USD jpy. And I don't have a delta chart for that right on hand. So another one we could look at. Okay, this is for the next chart. This should be in everyone's memory. This was the first part of the recent range. Okay. And we have this major selling climax right here putting in this low. Right? So everyone's eyes are on this. My eyes were on that. Okay. A lot of traders anticipated continuation outside of this. But again, this is why we talk about acceptance. Okay? This is why we talk about trap traders and acceptance. All right? So what we want to see is committing through this zone. All right? The last thing we want to see is a swing failure pattern. All right? So in this case, it's just exactly what we have. So here's the low. Okay? If we're going to include the wick and the body, just include both, okay? Price aggressively comes into this low first, taps, touches, and it is immediately rejected. Okay? So a lot of the times you'll see people draw swing failure patterns like this as well, okay, price come down, okay, swing not break this low, and it looks like just a higher high. And you'll have traders that will take advantage of the breakout of this high. So what you have is something similar right here, okay? If you're not looking at that wick, you have right here, aggressive into the low bounce, forget about that wick. You have this high created right here. A lot of traders that will be looking to take advantage of this breakout of the high if price again comes down, makes a high, comes down again, and now crosses this high. So for anyone who's currently trapped down here, they're already in trouble because you have this pattern setting up, okay? So you have all of this fuel starting to build in as price is approaching the top of this high. So if we look down, though, on something like the delta chart, what we'll notice is in this wick right here, all right, this clear sign of rejection by buying. Okay, what we have is a ton of aggressive selling. So right here, this volume right here, 33 million, 21 million, 13 million, 10 million, okay? Right at the bid. So aggressive sellers hitting the bid, okay, you have an imbalance right here. You have all of this selling into the lows. So all of this selling into lows, aggressive, negative delta in this candle, a ton of volume in this wick, which is not seen if you're just looking at a wick. So this is why the footprint charts are useful, because this wick doesn't really tell a story. If anything, the wicks, they look skinny, so they look like something that maybe wouldn't have a lot of volume. Even though we know that buyers aggressively push this back up, in this case, all of these traders are currently trapped. Anyone who aggressively shorted the breakdown or sold into this breakdown in anticipation of, again, what happening, these lows breaking and price cascading all the way down to the lows, they are currently trapped. So, so what happens? Price comes into the low, traps those traders and closes back above, and that is your indication to get long. Okay? Now some traders will wait for a trigger again. So you'll see some traders that do look for something like this, a break of this high. Or you'll have some traders that, again, if we just look back at the previous examples, look for something like this, where you have these candles that are clearly respecting those lows, okay? And in this case, you could place a stop right around the structure, or you could place a stop around the candle that reclaimed this low. So that is a swing failure pattern, okay? And you'll notice these Occur on high time frames and low time frames. Alright. They definitely carry more weight though when they're occurring on the higher time frame. Because the higher time frame is going to carry more significance. Okay. Because again, we talked about this before, the higher time frame is going to bring other time frame participants into the mix. Okay. So major swing points on the higher time frame. Okay. It's not just so on the lower time frame. So say down in this area right over here, typically you're not going to have higher time frame participants or very large traders getting into the mix. Okay. Because there's a lot of chop. This is lower time frame action. All right. It's hard to engineer liquidity over here and get filled for a large position. Whereas major swing points, they bring everyone into the mix. So again, if we look back at this low in Bitcoin, this area right here, this was a critical area for not only traders who are short term traders or intermediate term traders, swing traders. This was an important area and a low to protect for position traders, long term investors. There's a lot of interest in this area holding because of that. There's a lot of eyes on this. When there's a lot of eyes on this, there's a lot of liquidity under here because you have a lot of traders that are looking to take advantage again of this breakdown or looking to get out of position if they're currently long. And on the higher time frame, you have a lot of other participants that are likely considered currently long. If we consider that there are traders that have been long for quite some time and end in a major break of market structure would be looking to potentially exit their positions. So this is the swing failure pattern. Okay. You'll see that if you just draw a diagram. It is very simple. There's a low.

And then price will come back down, spike below, close back above. And we're looking for some type of retest. Okay. In this case, some type of retest, some traders will wait for the breakout of the high. So the pattern will look something like this. So low, spike below. Okay. And then break of this high. I don't know why I drew that rectangle. I think I accidentally drew that. Let's do that again. So make a low, come back above. Okay. Make a lower low, but then close back above. And we're looking for something like a retest. So a retest of that structure indicating that this level is now holding. Okay. And again, what we want to see, all right, at the highs, if it's a swing failure pattern, at the highest or if the swing failure pattern at the low is. We want to see traders aggressively commit in the opposite direction. Okay. So in the opposite direction their price is going to reverse. All right. Or what we're looking to take advantage of. So if we're looking to take advantage of the swing pattern right here, rather swing failure pattern, we're not looking to short a swing failure pattern here, we're looking to long it. Okay. And if at the highs we'd be looking to. If you consider maybe just using this as a crude example, it's not a swing failure pattern but. But if you consider that this was a high swing failure pattern and that this was a high, which it wasn't because there were these highs over here, if we consider that then we have to assume that this is a short at this point getting into the swing failure pattern. So short up here, a long down here. So we need to see price reverse, we need to see a close back within the level to confirm that the pattern has actually occurred. It's not just that you wick through it and that's that. All right, so that's that guys. Hopefully that has been useful. This is an excellent pattern to use. Great pattern on the mid time frames, on the higher time frames especially. But you can also use this on the lower time frames as well. If you're looking to scalp, you just have to keep in mind what the current higher time frame trend is and where you sit in relation to that trend. Alright, so that's that. This is Ryan AKA Kenrin Clark. Exercise, proper risk management and trade effectively.