How to Spot a Swing High & Deviation Setup

Understanding Deviations in Trading

I explore the concept of deviation setups - how to identify, trade, and interpret their significance. A deviation follows an over-under pattern, a recurring concept in trading despite its occasional rebranding. This setup is a cornerstone of my trading strategy.

Key Elements of a Deviation Setup

Spotting a Significant Swing High

Identify a strong breakout from a consolidation phase; the movement should be notable.

Breakouts are often followed by rejection or a second attempt to push higher.

To determine the correct swing high

Ignore breakout candles with excessive wicks.

Instead, use the second high formed after the wick.

Why Highs Matter in Trading

UB advises against using liquidation wicks as swing highs.

Wait for a proper rejection post-breakout to mark your level.

The same principles apply to both long and short trades but in reverse.

Executing a Deviation Trade

Identifying a Short Setup

Once a significant high is established, the price often retraces to prior consolidation.

If the price revisits that high and breaks above it, it traps long traders expecting a sustained breakout.

UB looks for a consolidation period above the high - the longer it holds, the more traders get trapped.

Entry and Exit Strategy

Entry: Enter a short position when the price drops back below the previous high after trapping longs.

Stop Loss: Place the stop above the consolidation high or a fake-out wick.

Take Profit: Aim for prior consolidation levels where the price has reacted strongly.

Live Example with Bitcoin

UB applies this strategy to Bitcoin’s $19,650 level, demonstrating

A clear deviation above the high.

A prolonged consolidation period trapping traders.

A breakdown below the level, signaling a short opportunity.

The importance of confluence - using multiple highs enhances the setup's reliability.

Key Insights

Deviations trap traders anticipating breakout moves.

A prolonged consolidation above the high strengthens the reversal setup.

Always identify the correct swing high and avoid using liquidity wicks.

Set stop losses strategically to reduce risk.

Be prepared to manually exit if the price unexpectedly reclaims the level.