Install our The Swing Failure Pattern (SFP) is a technical indicator used to identify potential reversals in the market. Developed by Dr. Mark Douglas, this pattern involves a swing high followed by a failure to reach new highs, resulting in a reversal signal.
How SFP Works
The SFP indicator is based on the idea that when a security fails to break above its swing high, it may be indicating a potential reversal. The pattern typically involves three key components: a swing high, a failure to reach new highs, and a subsequent price drop.
To use the SFP indicator, traders need to identify a swing high in a particular security's price chart. Once identified, they should look for a failure to reach new highs, which may indicate a reversal signal. The pattern can be confirmed by looking at the momentum analysis of the security, such as the rate of change (ROC) or moving averages.
Example SFP Pattern
A classic example of an SFP pattern would be a security that makes a swing high followed by a failure to reach new highs. For instance, if a stock makes a swing high at $100 and then fails to break above it, the trader may consider this a potential reversal signal.
Momentum Analysis
Momentum analysis is an essential component of the SFP indicator. By analyzing the rate of change (ROC) or moving averages, traders can confirm whether the security is in a bullish or bearish trend. If the ROC is negative or the moving averages are crossing below each other, it may indicate a potential reversal signal.
Conclusion
In conclusion, the Swing Failure Pattern (SFP) technical indicator is a powerful tool for identifying potential reversals in the market. By understanding how to use this pattern and incorporating momentum analysis, traders can make more informed trading decisions and potentially increase their chances of success.