Swing Point Failure

Entry Logic

• Entry trigger: Price attempts to make a new higher high (or lower low) but fails and reverses, breaking the previous swing low (or high).
• Confirmation: A strong reversal candle forms at the failed swing point, with volume increasing on the reversal.
• Timeframe: 15-minute chart.
• Location context: Often occurs at the upper/lower boundary of a trading range or channel.
• Market condition: Ranging or weakening trend.

Exit Logic

• Profit target: The opposite side of the trading range or channel.
• Scaling out: Not typically used; it's an all-out exit at the target.
• Trailing stop: Trail stop above/below the highs/lows of the last 3 candles.
• Signal failure exit: Exit if price makes a new high/low, invalidating the failure pattern.
• Opposite signal exit: Exit if a strong trend develops against the position.
• Time expiration: Exit if the target is not reached within the trading session.
• Momentum loss: Exit if price stalls and moves sideways for more than 1 hour.

Stop Loss Structure

• Hard stop: Just above the high of the failed swing point (for shorts) or below the low (for longs).
• Soft stop: A 15-minute close that invalidates the pattern.
• Max dollar loss: $120 per trade.
• Max percent loss: 0.6% of account.
• Structural stop: The high/low of the failed swing attempt.

Risk Management Framework

• Risk per trade: 0.5% of account.
• Daily limit: 3 losing trades.
• Weekly limit: 4% drawdown.
• Max drawdown: 12%.
• R:R requirement: Minimum 2:1.

Position Sizing Model

• Sizing approach: Fixed risk per trade.
• Volatility adjustment: Tighter stop and smaller size if volatility is high.
• Conviction sizing: Use 75% of normal size, as it's a counter-trend setup.
• Scaling in: Not recommended.
• Scaling out: Not recommended.

Trade Filtering

• Market conditions to avoid: Strong, trending markets.
• Setups required: A clear swing point failure at a well-defined resistance/support level.
• Instruments: Stocks and indices that tend to range.
• Time restrictions: More common during mid-day trading when trends often pause.
• Chop/news avoidance: Avoid if a major news event is imminent.

Context Framework

• Trend direction: Counter-trend or range-bound.
• VWAP relationship: Price rejecting the VWAP band and reversing.
• MA relationship: Price failing to hold above/below a key moving average (e.g., 50 SMA).
• Range location: At the top or bottom quarter of the established range.
• Higher TF alignment: The 1-hour chart shows a loss of momentum or divergence.

Trade Management Rules

• Breakeven: Move stop to breakeven after a 1:1 risk/reward move.
• Scale out: Not applicable.
• Add size: Not applicable.
• Fast vs slow moves: Expect a relatively quick move to the other side of the range.

Time Rules

• Optimal window: 11:00 AM to 2:00 PM EST.
• Times to avoid: Market open and close.
• Session notes: This pattern is common in the less volatile parts of the trading day.

Setup Classification

• A+ criteria: A sharp rejection at the swing point with a large reversal candle and high volume.
• A criteria: A clear failure and reversal with decent volume.
• B criteria: The failure is slow and grinding, with low volume.
• C criteria: The market is trending strongly; avoid counter-trend trades.

Market Selection Criteria

• Instruments: IWM, DIA, utility stocks (XLU).
• Volume: Moderate, but with clear spikes on the reversal.
• Volatility: Lower to moderate.

Statistical Edge Metrics

• Win rate: 50%.
• Avg win: 2.5R.
• Avg loss: 1R.
• Profit factor: 1.25.
• Expectancy: 0.25R per trade.

Failure Conditions

• The failure is just a pause, and the original trend resumes with force.
• The market becomes extremely choppy with no clear direction.

Psychological Rules

• Requires discipline to trade against the most recent price action.
• Must be willing to accept that the primary trend might resume.

Advanced Components

• Regime detection: Use an indicator like the Choppiness Index to identify ranging markets.
• Filters: Look for RSI divergence confirming the swing point failure.
• Correlation: Avoid taking this setup if the broader market is trending strongly.
• MTF alignment: The higher timeframe should not be in a strong, confirmed trend.

Location

• Strongest: At the boundaries of a well-established, multi-day trading range.
• Weakest: In a strongly trending market.