Swing Failure Reversal Strategy

This trading strategy is a reversal indicator that marks potential pivot points based on price reaching new local highs or lows, adjusted by a timeframe-dependent multiplicator, and then reversing direction within the same candlestick.

To trade this strategy manually on TradingView:

• Set a ‘Lookback Period’ for determining local highs and lows, typically 40 periods.
• Adjust a ‘Multiplicator’ value based on the timeframe you are trading in. For instance:
  • For 5-minute bars, set the multiplicator to 0.003.
  • For 15-minute bars, set it to 0.007.
  • For 1-hour bars, set it to 0.01.
  • For 4-hour bars, set it to 0.03.
• Identify "Local Highs" when the current high is greater than the highest high over the lookback period multiplied by (1 + multiplicator).
• Identify "Local Lows" when the current low is less than the lowest low over the lookback period multiplied by (1 - multiplicator).
• A long entry (buy) is triggered when a local low is identified, and the candle closes higher than it opens.
• A short entry (sell) is triggered when a local high is identified, and the candle closes lower than it opens.
• To exit a long position, close the trade when the current high is equal or greater than the exponential moving average (EMA) of the close over 75 periods.
• To exit a short position, close the trade when the current low is equal or below the EMA of the close over 75 periods.

The strategy employs detection of Swing Failure Patterns (SFPs) to capitalize on potential market reversals. Improving this trading method entails refining its parameters and combining additional indicators for enhanced precision.

• Adjust the lookback period based on the asset's volatility. For higher volatility, increase the lookback period to avoid false signals; decrease it for lower volatility assets for timely entries and exits.
• Calibrate the multiplicator more precisely for different timeframes by backtesting the strategy across historical data to find the optimal settings for different market conditions.
• Incorporate volume analysis to confirm SFP signals. For instance, an increase in volume on the candle confirming the SFP can add credence to the reversal signal.
• Use additional momentum indicators such as the MACD or Stochastic oscillator to cross-verify the reversal signals given by RSI divergences.
• Implement a risk-reward ratio analysis before entering trades. Seek potential reversal points offering a risk-reward ratio of at least 1:2 or higher.
• Apply support and resistance levels to identify potential stop loss and take profit levels. Entering trades near these levels can provide more definitive exit points.
• Add trend filters such as moving averages to determine the overall market direction and only take trades that align with the macro trend.
• Consider the market context by evaluating news events or economic releases that may cause sudden and drastic price movements, disregarding SFP signals around these times.
• Employ price action patterns such as head and shoulders or double tops/bottoms in confluence with SFP to strengthen the reversal signal.
• For exits, beyond using EMA, incorporate time-based exits like end-of-day or session closes to mitigate overnight market risk.

Improving this strategy requires meticulous backtesting for each change to validate their effectiveness. Combining different analytical approaches, maintaining discipline in risk management, and being adaptive to changing market environments will enhance the Swing Failure Reversal Strategy for manual trading.

This strategy suits the calculated trader who thrives on detecting early signs of trend reversals and is comfortable entering positions that go against the prevailing momentum. It is ideal for:

• Swing traders: Who can capitalize on the potential turnarounds in price direction that this strategy aims to identify over days or weeks.
• Day traders: Especially those trading on higher time frames, who can use the strategy's adaptability to different timeframes to capture intraday reversals.
• Contrarian traders: They often seek opportunities to go against market sentiment when they believe a shift in direction is imminent.

The strategy's combination of technical analysis and alert systems aligns well with styles that need quick decision-making based on clear technical criteria.

• Strategy essence: Utilizes price and RSI divergence to pinpoint potential entry points for early trend reversals.
• How it works: Marks 'Swing Failure Patterns' when price fails to reach new highs or lows, signaling short or long positions.
• Automation: Can be coded into a TradingView script with customizable parameters, offering alerts for market entry and exit.
• Manual trading: Involves setting lookback periods, adjusting multiplicators, and confirming SFPs with volume and momentum indicators.
• Optimization: Requires backtesting different settings, trend filters, and supplementing with price action patterns and macro trend analysis.
• Risk management: Employs stop losses at support/resistance levels and considers a favorable risk-reward ratio before executing trades.
• Trader profile: Best for swing and day traders, particularly those with a contrarian outlook seeking to exploit reversals.
• Key tools: Combines RSI divergence with the highest highs and lowest lows over a period, enhanced by volume and other indicators.