Protected Swings – Understanding Trend and Invalidations

Summary

This video dives into the concept of protected swings in trading, focusing on identifying protected highs and lows in market trends. A protected swing is a high or low that, once confirmed, is expected to hold as the trend progresses. The video highlights two key types of protected swings: those based on price sweeps and those formed around fair value gaps. Using real-world examples, the video explains how traders can utilize these protected levels for entry points, trend continuation, and managing risk-to-reward ratios in their trading strategies.

Takeaways

• 😀 A protected swing refers to a high or low in the market that is expected to hold as the trend continues.
• 😀 In a bullish trend, a protected low forms when a short-term low is swept out and then closed above a series of down-close candles that formed that low.
• 😀 If using SMT (Smart Money Tool), a correlated asset sweeping the low can also confirm a protected low, even without closing above the original low's candles.
• 😀 Another type of protected swing is formed by price reaching into a fair value gap, followed by a close above a series of down-close candles.
• 😀 A protected high is formed when a high is swept out, followed by a close through a series of up-close candles that made that high.
• 😀 Traders use protected swings to anticipate a trend reversal or continuation by monitoring the closure of important highs or lows.
• 😀 In a bearish trend, a protected swing can form when a previous high is swept out and a close below the series of up-close candles is achieved.
• 😀 Protected swings serve as invalidation levels, where traders place stops, offering good risk-to-reward opportunities when entering trades.
• 😀 Tracking protected swings on different time frames (e.g., daily, hourly) helps refine entry and exit points for trading opportunities.
• 😀 The concept of protected swings is important for both trend continuation and reversal strategies, as they provide critical levels to monitor for potential market moves.

Q & A

What is a protected swing in the context of market trading?

A protected swing is a high or low point in the market that is expected to hold as the trend continues. It is formed when a price level is swept or closed through specific candles, indicating that this level will likely hold as the trend proceeds in the anticipated direction.

How do you define a protected low or high?

A protected low or high is defined by a price level that is either swept or broken and then closed through a series of specific candles. In a bullish scenario, a protected low is formed when a low is swept and then closed above a series of down-close candles, indicating the low will hold if the trend continues higher.

What is the role of SMT (Smart Money Technique) in identifying protected swings?

SMT involves using correlated assets to confirm a protected swing. If the correlated asset sweeps a low and confirms it as a protected low, this information can be used to anticipate that the low will hold, even if the main asset has not yet fully swept the low.

What is the difference between a protected swing based on a liquidity sweep and one formed out of a fair value gap?

A protected swing based on a liquidity sweep occurs when a market low or high is swept, and then a closure through specific candles forms the protected swing. A protected swing formed out of a fair value gap occurs when price reaches into a fair value gap and then closes through a series of candles, marking that level as protected.

How do you identify a valid reversal using protected swings?

A valid reversal is identified when a price sweeps a high or low and closes through the candles that formed that high or low. This confirms the level as protected, and you can then anticipate the reversal in trend, either continuing higher in a bullish scenario or lower in a bearish scenario.

What should be observed when looking for a protected high in a bearish market?

In a bearish market, a protected high is formed when a high is swept, and then the price closes through the series of up-close candles that formed that high. This marks the high as protected, signaling that the trend is likely to continue downward.

How can fair value gaps be used to anticipate the continuation of a trend?

Fair value gaps are used to anticipate the continuation of a trend by looking for price to reach into the gap and then close through specific candles that formed the gap's boundary. This closure indicates a protected swing, suggesting that the trend may continue in the direction of the previous move.

Why is risk-to-reward important when using protected swings in trading?

Risk-to-reward is important because protected swings act as invalidation points. By entering trades close to these protected swings, traders can ensure their stop-loss is placed just beyond the protected level, providing better risk-to-reward ratios as they target their profit levels.

How does tracking protected swings help in managing trades effectively?

Tracking protected swings helps in managing trades by providing key levels of support or resistance. Once these levels are confirmed, traders can make more informed decisions about entries, stop losses, and take profits, allowing for better control over the trade's risk and reward.

What is the significance of closing through a series of candles in forming a protected swing?

Closing through a series of candles is significant because it confirms that the price has broken through a key level, marking it as a protected swing. This closure signals that the trend is likely to continue in the direction of the breakout, whether bullish or bearish, making the level a reliable reference point for future trades.