A "swing" is the length of movement between the extreme high and the extreme low of a currency price. When the price goes back and forth like this for a period of time, the currency is said to be trapped in a sideways trading range or a swing. For this to be a true trend the analyst must be able to identify clear support and resistance levels that create the boundaries of the swing. In other words, the price never goes above a certain level (resistance) and never goes below a certain level (support). The price truly swings back and forth between highs and lows.
To understand the "Failure Swing" pattern, you have to begin with an understanding of the Relative Strength Index (RSI). This is an oscillator that was developed to help traders gauge the current strength of a stock's price in relation to its past performance. An RSI reading above 70 indicates that the currency is overbought, and a reading below 30 means the currency is oversold.
If the currency’s price is hitting new highs, but the RSI fails to go above its previous high, this is a signal that a reversal is coming. When the RSI takes a downturn and falls below its most recent low, it has completed a "failure swing." This failure swing acts as a confirmation of the upcoming reversal.
The same is true if prices continue to move lower while the RSI fails to move lower during the same time period. When the RSI begins to fall below the trough or "valley" formed by a double top, it indicates a reversal of an up trend and it is a signal to buy. A double bottom in the RSI with an upward movement indicates the reversal of a downtrend and it is a signal to sell.
Disclimer: This website is for informational purposes only and is not intended to provide
specific commercial, financial, investment, accounting, tax, or legal advice.
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