â°ī¸Swing Failure Patterns
Identifying Reversal Zones with SFPs and Deviations
The Smart Money Concepts toolkit introduces unique metrics like Swing Failure Patterns (SFPs) and Deviations to help you identify potential reversal zones and price targets.
Swing Failure Patterns (SFPs):
SFPs form when price fails to create a new high or low, potentially indicating a weakening trend and a possible reversal.
During an SFP, the indicator plots a triangle along with the SFP label (Bullish or Bearish) to highlight the potential reversal zone.
The triangle also projects a potential range or target area where the price might find support or resistance, acting as a guide for your entries and exits.
Deviations:
While SFPs highlight potential reversal zones, deviations can help you gauge the strength of those reversals. Deviations measure the distance between the current price and the SFP level.
Combining SFPs and Deviations:
By analyzing SFPs alongside deviations, you can potentially:
Increase confidence in reversal signals: A larger deviation might suggest a stronger potential for price to reverse from the SFP zone.
Refine your entry and exit points: The projected range from the SFP triangle can be used in conjunction with the deviation to narrow down potential entry or exit points for your trades.
Remember: SFPs and deviations are tools to aid your analysis, not guarantees of future price movements. Always conduct thorough research and manage your risk effectively before making any trading decisions.
SFP
Understanding Swing Failure Patterns (SFPs):
Swing Failure Patterns (SFPs) are one of the unique metrics offered by the Smart Money Concepts toolkit. They help you identify potential reversal zones in the market.
How SFPs are identified:
An SFP forms when the price fails to break beyond a previously established swing high or low. This suggests a weakening trend and a possible reversal.
To qualify as an SFP, the price movement also needs to absorb liquidity from the market. This absorption is measured against a user-defined threshold, ensuring the SFP identifies significant liquidity movements.
Once these conditions are met, the indicator plots a triangle on the chart, along with the SFP label (Bullish or Bearish) to highlight the potential reversal zone.
Using SFPs in your trading:
SFPs provide valuable insights into potential reversal areas.
The projected range within the triangle can act as a guide for your entry and exit points.
However, SFPs are not guarantees of future price movements. Always combine them with other analysis tools and manage your risk effectively before making any trading decisions.
Additional notes:
The "liquidity threshold" setting allows users to personalize the sensitivity of SFP detection, focusing on areas with stronger liquidity absorption.
Remember, effective use of SFPs requires practice and experience in conjunction with other technical analysis methods.
| Setting | |
|---|---|
Lenght | If enabled, when an SFP is found, the indicator will scan the selected bar back to find a higher point or lower point; this will be your new SFP. |
MTF | Allow the user to plot higher or lower timeframe SFP and Deviation range. |
Filtering |
|
Threshold | Threshold required to plot SFP |
Using a high threshold will heavily reduce the amount of SFP displayed; it is recommended to keep it from 1 to 1.5.
Deviation and Projection
Understanding the Projection Area:
The Projection Area is a feature within the Smart Money Concepts toolkit that helps visualize potential price targets based on the most recently identified Swing Failure Pattern (SFP) on your chart.
How it works:
The indicator plots a horizontal line on the chart, indicating a possible take-profit zone derived from the latest SFP.
This zone is based on the historical price movement associated with the SFP, suggesting an area where the price might encounter support or resistance during a potential reversal.
Using the Projection Area:
While the Projection Area offers a visual guide for take-profit or price targets, it's crucial to remember that it is not a guarantee of future price movements.
Always combine this information with other technical analysis tools and conduct thorough market research before making any trading decisions.
Consider factors like overall market trends, risk tolerance, and exit strategies when using the Projection Area for potential profit targets.
Additional notes:
The effectiveness of the Projection Area depends heavily on the accuracy of the identified SFP. Ensure you understand how SFPs are formed and interpret them within the context of the broader market context.
Remember, trading always involves inherent risks. Use the Projection Area as a supplementary tool and prioritize responsible risk management in your trading practices.
In order to use the Deviation area, SFP must be enable
Is suggested to look for area of confluence with the deviation area. Example the 250% level in confluence with a PD Array
Confluence
Important Note on SFPs:
Swing Failure Patterns (SFPs) are valuable tools for identifying potential reversal zones, but it's crucial to remember:
Use SFPs in conjunction with other metrics: SFPs are most effective when combined with other technical indicators within the Smart Money Concepts toolkit. Analyzing price action, market structure, and other relevant factors alongside SFPs can enhance the reliability of your trading signals.
Do not rely solely on SFPs: SFPs are sensitive to price volatility, meaning they may be triggered by temporary fluctuations and not always represent true trend reversals.
Example Scenario: Consider seeking an SFP within a well-defined order block, ideally following a liquidity grab or sweep in the market structure. This approach can increase the confidence in the potential reversal signal provided by the SFP.
By understanding the limitations and fostering a critical approach to SFP usage, you can leverage them as a valuable supplementary tool within your overall trading strategy. Remember, responsible risk management and thorough market analysis remain paramount for successful trading decisions.
Build-in alerts are available to the user
Last updated
