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Written and copyright © 2008-2010 by Thomas N. Bulkowski. All rights reserved.
Failure swings are chart patterns
that appear on indicator lines. They are small M or W shaped patterns that reliably signal
short-term price turning points.
M-Shaped Failure Swings
Look for M-shaped failure swings that span the
trigger line in the indicator. The chart to the right shows the Wilder relative strength
index (RSI) with the failure swing spanning the 70 overbought signal line (the
horizontal line at 70).
The stock begins its turn as the failure swing forms.
Notice that the second peak of the failure swing doesn't rise above the first peak.
It fails to swing higher, indicating a weakening technical picture and a potential
trend change.
The example pictured is taken from an actual stock/indicator pair. Various shapes for the failure swing appear to the
left in the chart. Some analysts argue that the failure swing must span the trigger line (70), but you can
find numerous examples where that is not the case and yet price changes trend. Failure swings occur in indicators other
than the RSI, too.
W-Shaped Failure Swings
Look for W-shaped failure swings that span the trigger
line in the indicator. The picture to the right shows the Wilder relative strength index (
RSI) with the failure swing spanning the oversold signal line (the horizontal line
at 30).
The stock begins its turn as the failure swing forms.
The example shown in the chart is taken from an actual stock/indicator pair. Various shapes for the failure swing
appear to the left.
Some analysts argue that the failure swing must span the trigger line (30), but you can find
numerous examples where that is not the case and yet price changes trend. Failure swings also occur in indicators other
than the RSI.
Other Examples
-- Thomas Bulkowski
Copyright © 2008-2010 by Thomas N. Bulkowski. All rights reserved. Cole’s Law: Thinly sliced cabbage.
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