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SCHAFF SWING INDICATOR

Doug Schaff

FX-Strategy

http://www.fx-strategy.com

The legendary technical analyst, W.D. Gann, called price peaks "swing highs" and price troughs "swing lows". Gann liked the term "swing" because it is active; it reminded him of the market�s energy or movement.

The Schaff Swing Indicator plots a dashed-line to the right of a price swing of a chosen strength. The line continues until the swing is broken or a swing of the same strength occurs at a new level.

Swing High A price bar is considered a swing high when the high of that bar is higher than the high of a certain number of bars before and after it. The Strength input specifies the required number of lower highs that need to be on either side of the swing high before it will be plotted on the chart.
Swing Low A price bar is considered a swing low when the low of that bar is lower than the low of a certain number of bars before and after it. The Strength input specifies the required number of higher lows on either side of the swing low.

Swing high and swing low bars can be used to calculate trendlines, support and resistance lines, and pivot points.

Swings are often used to calculate initial stop loss orders, and can be incorporated into trading signals. In the 4-hour USDJPY chart, below, the Schaff Trend Cycle indicator and TC Trigger are applied along with swing highs and lows of strength 5.

In the middle of the chart are three green buy setup bars. They occur just below or above a swing high, which makes them more significant. Closing above a TCB setup bar and a swing high indicates that higher prices are likely.

Meanwhile, the swing low that occurred before the breakout can be used as an initial stop loss level for a long trade. Why does this make sense? Breaking the swing low would change the pattern of higher highs and higher lows, thus negating a bullish forecast.