Protected Swings in Trading

Summary

In this video, the concept of 'protected swings' in market analysis is explored, detailing how swing points are validated across different timeframes. The video covers how high time frame swing points can protect lower time frame swings, and how order blocks, SMT divergence, and other market patterns can establish protected levels. Through real-world examples, the video highlights how to identify these swings, validate them, and apply them in trading strategies. It also discusses when these protected swings may fail, offering a comprehensive approach to understanding and using protected swings in trading.

Takeaways

• 😀 A swing point is a three-candle pattern with one candle to the left and one to the right, marking potential turning points in the market.
• 😀 Protected swings are swing points unlikely to be breached, acting as defense levels in market analysis.
• 😀 To validate a swing point, an order block is used, and once the price closes above or below opposing candles, the swing point is verified.
• 😀 High time-frame swing points are considered protected swings on lower time frames (e.g., a daily swing point is protected on an hourly chart).
• 😀 Order blocks in trending markets (highs and lows) serve as protected swings, marking levels of potential support or resistance.
• 😀 SMT (Symmetry Divergence) highs and lows are considered protected swings when correlated assets show opposite price movements.
• 😀 ICT (Inner Circle Trader) intermediate term highs and lows are protected swings but are not heavily used in this analysis.
• 😀 Example 1: A daily swing point on the DXY chart can be validated on lower time frames like the hourly and 5-minute charts.
• 😀 Example 2: Aligning higher and lower time frame swing points, like the 4-hour and 15-minute charts, helps in refining trade entries.
• 😀 Failure to establish a clear high or low of the day, a protective swing against the high-timeframe trend, or impact news events can cause protected swings to fail.

Q & A

What is a swing point in the context of market analysis?

A swing point is a three-candle pattern with one candle to the left and one candle to the right. This pattern does not depend on the color of the candles, and it marks a key turning point in market movement.

What are protected swings and how are they different from regular swing points?

Protected swings are swing points in the market that are less likely to be breached. These act as defense levels and are validated through order blocks or other methods like closing above or below opposing candles.

How do you validate a swing point?

A swing point is validated through an order block. Once an order block forms and we close above or below the opposing candles, the swing point becomes validated and protected.

What is the relationship between high-time frame swing points and lower-time frame protected swings?

A swing point on a high time frame, like the daily or weekly chart, can serve as a protected swing on a lower time frame, such as the hourly or 15-minute chart. For example, a daily swing point can be considered a protected swing on the hourly chart.

Can you explain the concept of an 'order block' and its role in identifying protected swings?

An order block is a price level where significant buying or selling occurred. It helps identify areas where price might reverse. A protected swing can be validated when a price moves above or below this order block, indicating strong market interest in that area.

What is meant by an 'SMT divergence' and how does it relate to protected swings?

SMT (Smart Money Tool) divergence occurs when a correlated asset manipulates its price levels (like lows or highs) while another asset shows strength or weakness. This divergence can validate a protected swing since the manipulated price in the correlated asset suggests that the market will not breach that level.

What is the ICT Intermediate Term High/Low concept, and does the speaker personally use it?

ICT Intermediate Term Highs and Lows are identified by a swing point with short-term lows to the left and right. These can be used as protected swings, but the speaker does not personally use them, preferring other methods like SMT divergences or order blocks.

What are some examples of how protected swings are used in real-time trading?

In the DXY daily chart example, the speaker shows how a swing point formed in the daily chart acts as a protected swing when moving to the hourly chart. As price closes above or below specific candles, it solidifies that point as protected and can guide trade decisions.

What are the potential failures of protected swings?

Protected swings can fail if there is no established high or low of the day, if the swing goes against the higher-time frame trend, or if there is high-impact news (like CPI) that manipulates the price movement, making it unreliable.

Why is the closure above or below certain candles important in the validation of protected swings?

Closing above or below specific candles indicates a shift in market sentiment and price action. This validation helps confirm that the swing point is protected, making it more reliable for traders to base their stop losses and entry points on it.