Swing Failure Patterns

Swing Failure Pattern (SFP) in Trading

In the world of price action trading, few concepts are as powerful as the Swing Failure Pattern (SFP). This three-candle formation signals a potential reversal in the market, showing when buyers or sellers are losing control. Popularized by the Inner Circle Trader (ICT) methodology, SFPs are a core tool for spotting market traps and identifying “smart money” activity.

What is the Swing Failure Pattern?

The Swing Failure Pattern occurs when price tries to continue in its current trend but fails to sustain the move. Essentially, it signals trend exhaustion and highlights potential reversals.

There are two main types:

Bullish SFP (Bull SFP): Appears in a downtrend and indicates a potential move to the upside.

Bearish SFP (Bear SFP): Appears in an uptrend and signals a possible reversal to the downside.

The pattern is simple in concept but powerful in execution: a failed breakout followed by a decisive reversal often gives traders a clear edge in anticipating where smart money is moving.

Anatomy of the Swing Failure Pattern

1. Bullish SFP (in a Downtrend)

This pattern shows that sellers are losing strength and buyers are stepping in.

Step 1: New Low (The Trap)

Price is in a downtrend.

A new swing low is made, enticing sellers to believe the trend will continue.

Step 2: Recovery (The Failure)

Price reverses sharply and closes above the high of the first candle in the pattern.

This signals that the new low was rejected, and buyers are now active.

Step 3: Confirmation (The Break)

Price continues upward, often breaking a recent swing high, confirming that buyers are in control.

Summary: Make a new low → then break above the high of the first candle.

2. Bearish SFP (in an Uptrend)

This pattern highlights weakening buyers and emerging seller strength.

Step 1: New High (The Trap)

Price is in an uptrend.

A new swing high is made, drawing in buyers expecting the trend to continue.

Step 2: Rejection (The Failure)

Price reverses sharply and closes below the low of the first candle.

This shows the new high was rejected, and sellers are taking control.

Step 3: Confirmation (The Break)

Price continues downward, often breaking a recent swing low, confirming sellers’ dominance.

Summary: Make a new high → then break below the low of the first candle.

Why SFPs Are Important

Swing Failure Patterns are significant for a few key reasons:

Traps Retail Traders:

Many traders enter late, buying the new high in an uptrend or selling the new low in a downtrend.

The reversal “traps” them, leading to rapid price movement in the opposite direction.

Reveals Smart Money Activity:

Sharp reversals indicate institutional participation. Smart money absorbs liquidity from trapped traders before moving price in their desired direction.

Clear Market Rejection:

When a swing low or high fails and is immediately reversed, it highlights underlying strength or weakness in the market.

In essence, the SFP is not just a pattern—it’s a window into the intentions of market movers. Recognizing these setups helps traders position themselves on the right side of the market with clarity and confidence.