Transcription
This chart setup has a 91% hit rate on Bitcoin over the last four years. I'm not making that number up. I actually count it. It's called a swing failure pattern or SFP. And once you see it, you cannot unsee it. Let's go over the charts and I'll break down exactly how it works.
Before I can explain what a swing failure pattern is, I need to explain to you how to identify swing highs and swing lows. I use a three candle swing system. So, if you look here on this diagram, you can see a swing high and a swing low. We have three candles with the middle candle being the highest, that creates a swing high. If you have three candles with the middle candle being the lowest, that creates a swing low. Think of these as your turning points in the market. They're often levels that people are watching to target for trades. They'll oftentimes put their stop losses above or below old swing points.
So, what is a swing failure pattern? Well, it's exactly what it sounds like. It's when you have a swing point. So, we have a swing high here, right? You have a candle with a higher candle in the middle and a lower candle on the right. That's a swing high. Price will come up to that level, it trades above it, but then it closes below just leaving the wick. Once you see this, this is considered an SFP. And oftentimes, you'll see the move actually reverse in the other direction. The true direction is revealed.
So SFPs are very common for reversals because what's going on under the hood here. When price trades above this old swing high, you actually have a few things going on. First of all, let's assume that price was trending down leading into this move. You're going to have people who are short and they're going to have their stop losses above this swing high because once price breaks down, they expect it to keep going lower. So when price comes up and takes out that high, it actually triggers their stops. The other traders that are getting caught here are breakout traders. So when traders see us trade above an old high, they might think this is a trend change. Price is going to continue going higher. They also get trapped and then the price continues to trade lower. So really often you're going to see these happen at swing points where there's a reversal occurring. So price was in a downtrend and now it's going to go into an uptrend. Price was in an uptrend and now it's going to go into a downtrend.
So you can see here on Bitcoin on the weekly chart, we have a three candle swing low. Price is in a downtrend, right? So there's going to be a lot of people who are expecting price to continue lower. This candle at one point was a fully blue candle trading below this low. A bunch of breakout shorts thought it was going to continue down only for us to SFP the low. So you have a low, a lower low or higher low. That's your swing low. And then you can see here we traded below it, closed above, and then price reverses almost 50% to the upside. This is an SFP.
Now, you're probably saying, does this really have a 91% hit rate on Bitcoin? And the answer is on the weekly chart, yes. I marked out every single SFP to the upside and downside on the Bitcoin weekly chart here since March of 2021. 20 of these SFPs caused a move in the opposite direction of 10% or more. 16 of these SFPs ended up marking major swing highs, swing lows, and oftentimes even bottoms and tops for the entire market. Two of these SFPs did not work. So overall, this is a setup that I could almost confidently trade blind because more often than not, when you get a weekly SFP on Bitcoin, you get a huge reaction.
So let's actually look at these. So the first one we're looking at here is the top of the initial bull market in April of 2021. You have a clear three candle swing here. There's your low, your high, there's your higher high, there's your lower high. This is now a swing high. Price trades above the swing and then closes back below just leaving a wick. What happens after that is a near 60% correction to the downside. Now what happened under the hood here? As you remember from earlier, we have some stop losses probably sitting here. Maybe people thought they caught the top here. Oh, this is a third drive. I probably caught the top. I'm going to put my short stop here only for them to get whipped out. And then you also have people who are chasing the breakout for that next leg higher. Oh, Bitcoin's going to 100K. They get trapped as well. Price then reverses to the downside.
So, how do you actually trade this? Well, once you have a confirmation of an SFP just on the weekly chart alone without even zooming in, soon as this candle closes as an SFP, you can enter at the market and put your stop above the SFP high. Because if this SFP is correct, we should not trade back above this level before having a significant move down, which we obviously did. We didn't come and trade back above this until like a year later, basically. So that is exactly how you're going to trade it. Okay. Once it closes as an SFP, you can put your stop above the high and you can let this thing ride.
What happened at the bottom? This is a major top in the market. 50 plus% draw down. What happened at the bottom? An SFP. We have a low with a lower low and then a higher low. There is your swing low. Price trades below it. Closes back above. Soon as this candle closes in SFP, you could enter with your stop below there. Your entry is right here. Yeah, you had a little bit of draw down on this one, but it never invalidated that SFP. Lo and behold, a massive move up. This one being from your entry. Let's assume you entered right at the weekly close there before it even had a significant pullback 50 plus%. And I mean, this thing went all the way to all-time high. It didn't come back and take out this low until literally a year later. This is June 2021. We didn't take this low out until like May of 2022.
We had another major swing low before a massive 50% rally formed by an SFP. You have a low, a lower low, a higher low. There's your swing low. We trade below it. Close above. You could enter right there with your stop there. And where does this trade to? New all-time highs. Where could you potentially have gotten out? Well, we SFPD the high. There's your high, higher high, lower high. We traded above it, closed below. That ended up being the top of the bull market. Price traded 80% lower from this entry. Just about 80%. 76 from just this entry alone.
So, these are clearly very powerful, right? So, these are four major swing points in the market all denoted by SFPs. We had no SFPS on the way down here. Then we get near the bottom again. And we have a high, higher high, lower high. We SFP that. And then this traded and ended up making the low. This is a large pullback here. This is 40% almost. We had a little SFP here. There's your low, lower low, higher low. We ran the lows. It doesn't look like that much, but this again was over a 15% move from bottom to top. And then the very bottom of the bare market was finalized with an SFP. You have your low, lower low, higher low. There's your swing low. We traded below it, closed back above. This was the pico bottom of the bare market. So, how I mentioned 16 of these caused major tops and bottoms or swing points. This is one of them.
The next major consolidation ended with a bullish SFP. We traded below the swing low, closed above it, massive move up. We had another swing low here. Traded below it, closed above, massive move up. This top, traded above, closed below, big move down. And if you actually extend this SFP out, we never came below that low there. We never closed below that swing low. All of these wicks respected it there. Another big move up.
This is one of the instances where it didn't work as well. So, we had a move up. This is technically an SFP of the high here, but it did in fact give a decent move to the downside. It was still 10%, but this one's a little messy. It wasn't a major top. The bottom, however, was an SFP. This is another bullish SFP. We take out this low, massive rally towards highs. Here is a SFP that caused a big dump. An SFP that caused a big pump. Where was the next major low for Bitcoin? A weekly bullish SFP right here. Where did it end? A weekly bearish SFP up here. We traded above the high. Traded all the way down from here to here. This is a 30 plus% pullback.
This is one of the SFPs that worked. Only two of them didn't work. This is one of them. We have a swing low here. We traded below it. closed back above this SFP did not work. Price ended up continuing to trade lower. However, the next one ended up being the bottom before the rally to new all-time highs. Another significant swing low here, and then ultimately what appears to be the top of the bull market for now, we had an SFP here, traded lower, and then we SFPD that high, and we've traded down 30 plus%. You have one more SFP here that didn't work. So, the two that didn't work were right here and here, where we SFP the low, but then continued lower.
So, now you might be asking, when's the next SFP going to occur? How do I know when Bitcoin's going to bottom? Well, based on the data here, if we run below this low and then close above and form an SFP similar to here and here, there's a good chance that we're going to get a decent rally. Maybe not to new all-time highs, but based on this data, a very good chance that we get at least a 10% rally or in the instance of the 16 other SFPS, a very significant rally of 20 30% or more. So, this is a very very powerful setup that you can use one time frame for.
Now, if you want to actually refine this setup and get tighter entries and find SFPS on lower time frames to get more trades, you can absolutely do that. But in terms of a general framework for high time frame analysis, few chart patterns are much better than the weekly SFP when it comes to Bitcoin.
So there you have it. You now understand how to mark out swing highs and swing lows and what a swing failure pattern actually is. I've gone over the data on Bitcoin for the last 4 years showing you just how powerful swing failure patterns are on the high time frame for Bitcoin. But guess what? This works on other cryptos as well. It also works on your traditional markets, stocks, equities. Get in the charts and try it out for yourself.
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As always, if you want to support your boy, go to my website, tradermain.com. All of my stuff is there and you can use code maine at breakout for a discount. That's all I got for you this time, guys. I'll talk to you in the next video. See you later.