Failed Swings
Imbalances give boxes, imbalances give direction.
We have studied how price forms imbalances, and how imbalances together form balance zones. We’ve seen how imbalances can be traded against, drawing EMA Boxes, and we have understood how imbalances create higher lows and lower highs to give us our entry diagonals.
The final piece of this puzzle is the failed swing. Every balance zone, be it an extended sideways range or just temporary balance (lower high, higher low, continuation), all of them end with a failed swing.
The Concept behind a Failed Swing
The principle is extremely simple and repeats itself over time, with every single imbalance. We know how to draw our boxes, right? We take the latest pivots for the upper and lower boundary, and then wait to observe price.
Once we have a box, an imbalance, and price breaks above or below that, it is an attempt to break out. When price then returns back inside the box, it marks an attempt to maintain balance and targets the opposite boundary.
The negotiation between sellers and buyers usually forms a new imbalance that we like to call a break out consolidation, or a negotiation for acceptance.
Without further ado, I just want to put the following thesis to the test:
Thesis: when price breaks above or below a box boundary, there are two forces in play. One side is attempting to maintain balance (back inside the range), the other side if attempting to push away from the box.
Therefore:
If an attempt to maintain balance is to succeed, price has to reach the other boundary and hold there:
If a break out attempt is to succeed, the attempt to maintain balance has to fail.
Let’s look at a volatile chop range and see if this thesis holds, at the same time that it demonstrates the concept for those of you that aren’t familiar with this technical principle, which is actually quite basic price action.
For this example, we’ll take an ending uptrend. Price has already lost EMA50 and pivoted, so we have the first box. Price set up a smaller box into the lower boundary, and is attempting to break down. If the box reclaims, the small box’ upper boundary is target one, the bigger box upper boundary is target two.