FX TECHNICAL ANALYSIS
When the market fails to record a new high in an uptrend, or vice versa, it could be translated in two ways: the buyers took profits and were unwilling to buy again, or a huge group of sellers (bears) entered the market where it forced the price to go down. A lot of different reasons could cause these actions.
Fig.1. Failure Swing Top & Failure Swing Bottom Source: JFD Brokers
In a failure swing, a primary trend fails to meet new highs in an uptrend or record new lows in a downtrend
Dow Teory discusses how Dow Teorists search for “failure swings” and confirmations to give definite signals of a trend exhaustion or trend reversal. Te idea behind any pattern – ie. a continuation pattern like a Flag Formation, or a reversal pattern like Head & Shoulders – is that they repeat themselves over and over again throughout time. Te same with the failure swings patterns. In a failure swing, a primary trend fails to meet new highs in an uptrend or record new lows in a downtrend.
The Secret Behind The Failure Swing Pattern
Let’s analyse why the market fails to record a higher high in an uptrend and lower low in a downtrend. First of all, let’s define what moves the
38 FX TRADER MAGAZINE April - June 2016
market. We have two basic types of orders, the buy action and the sell action. When someone is buying an instrument, it will help the selected instrument value to increase; thus the price to go up. On the other hand, when someone is selling, it will help the market price move downwards. When there is more buying pressure, meaning that more traders are buying the selected instrument, they are more chances for the instrument to move upwards or vice versa. Terefore, when buying orders (bulls) exceed selling orders (bears) then the market will move upwards and when selling pressure exceeds buying pressure the market will likely move downwards. When the market
is moving, someone
is winning, and at the same time someone is losing.
From a technical point of view, we can assume that a significant technical level coincided slightly below the previous top, where the buyers predicted that the price could struggle to break above it, alongside with a combination of a bearish moving average cross or an indication or a bearish cross from a technical indicator/oscillator. Another
reason
which could force the market to move down at this point could be an economic event or release which came out and affected the selected instrument. Following the economic event, a huge group of sellers probably entered the market while at the same time some stops were triggered as the price was falling, adding to the downward momentum. In both cases, if the group of sellers exceeds the group of buyers then the odds for the market to move lower are very high.
At that phase, the bears took control as there were only bears in the market since
the buyers were forced to
liquidate. And we are now at point D (figure 1), where a battle takes place most of the time. One of the reasons is that most of the pro-traders, as well as the swing traders, observed that a
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