Understanding SFP In Trading

• A false breakout beyond a previous swing high/low.
  
• A sharp rejection back within the prior range.
  
• A liquidity grab, triggering stop-loss orders and fueling a reversal.
  

• Occurs when price moves beyond a key level (e.g., swing high/low), activating orders from breakout traders and stop-losses of trapped traders.
  
• Smart money absorbs this liquidity before pushing the price in the opposite direction.
  

• A deliberate price movement designed to trigger stop-loss orders of retail traders before reversing.
  
• Often seen near major support and resistance levels.
  

• Fill large orders: By grabbing liquidity at key levels, they ensure they can enter large positions without causing excessive price slippage.
  
• Manipulate retail traders: Many retail traders place stop-losses at obvious swing points. Smart money exploits this by pushing the price beyond these levels before reversing.
  
• Create optimal trade entries: SFPs often align with high-probability reversal zones, allowing smart money to enter positions at better prices.
  

• Swing High (SH): A peak where price makes a temporary high before reversing downward.
  
• Swing Low (SL): A trough where price makes a temporary low before reversing upward.
  

• Higher Highs (HH) & Higher Lows (HL) – Bullish Trend
  
• Lower Highs (LH) & Lower Lows (LL) – Bearish Trend
  
• Equal Highs & Equal Lows – Range-Bound Market
  

• Above swing highs: Retail traders place breakout buy orders and stop-losses here.
  
• Below swing lows: Stop-losses of long positions and breakout sell orders accumulate.
  
• Trendline & Range Liquidity:
  
• Multiple touches of a trendline encourage traders to enter positions based on trendline support/resistance.
  
• Smart money may engineer a fake breakout before reversing price.
  

• Price sweeps a key low, triggering stop-losses of long traders.
  
• A strong rejection wick forms, pushing price back above the previous low.
  
• A shift in order flow (bullish market structure) confirms a potential reversal.
  
• Traders look for bullish confirmation, such as a higher low forming after the SFP.
  

• At strong support levels
  
• Below previous swing lows with high liquidity
  
• After a liquidity grab with momentum confirmation
  

• Price takes out a key high, triggering stop-losses of short traders.
  
• A sharp rejection forms, pushing the price back below the previous high.
  
• A bearish shift in order flow confirms downside continuation.
  
• Traders look for bearish confirmation, such as a lower high forming after the SFP.
  

• At strong resistance levels
  
• Above previous swing highs where liquidity is concentrated
  
• With clear rejection wicks and momentum shift
  

• Long wick rejection (indicating absorption of liquidity).
  
• Close back inside the previous range (invalidating the breakout).
  
• Increased volume on the rejection candle (confirming institutional activity).
  
• Break of short-term market structure (trend shifting).
  
• Divergences with indicators (e.g., RSI divergence at the SFP).
  

• Long wick beyond a key swing high/low (indicating a liquidity grab).
  
• Candle closes back inside the previous range (invalidating the breakout).
  
• Engulfing or pin bar-like structure (showing aggressive rejection).
  
• Minimal body size relative to wick length (e.g., wick is 2–3x the body).
  

• Price sweeps below a key low, triggering stop-losses of buyers.
  
• A long wick forms below the low, but the candle closes back above the level.
  
• This signals that smart money absorbed liquidity and rejected lower prices.
  

Best bullish SFPs occur at major support zones, previous swing lows, or untested demand areas.

• Price sweeps above a key high, triggering stop-losses of short sellers.
  
• A long wick forms above the high, but the candle closes back inside the range.
  
• This signals that smart money absorbed liquidity and rejected higher prices.
  

Best bearish SFPs occur at resistance levels, previous swing highs, or untested supply areas.

• High volume on the rejection wick → Indicates smart money absorption.
  
• Low volume on the breakout move → Suggests a lack of real buying/selling pressure.
  
• Increasing volume after rejection → Confirms a strong reversal.
  

• If volume is high on the breakout but low on the rejection wick, the move may continue trending rather than reversing.
  
• If volume remains low overall, it suggests weak market participation and a higher chance of chop or consolidation instead of a clean reversal.
  

• Volume Profile (VPVR)
  
• Relative Volume (RVOL)
  
• Footprint Charts
  

• SFPs are Liquidity Grabs – Price temporarily breaks a key high/low, triggers stop losses, and then reverses, signaling smart money absorption.
  
• Wick Rejection & Close Matter – A strong SFP has a long wick beyond a swing point but closes back inside the range, invalidating the breakout.
  
• Volume Confirms Validity – High volume on rejection wicks indicates smart money involvement, while low-volume breakouts often fail.
  
• Higher Timeframes = Stronger SFPs – 1H, 4H, and Daily SFPs are more reliable than lower timeframe setups, reducing false signals.
  
• Confluence Increases Probability – SFPs are most effective when aligned with order blocks, imbalances (FVGs), and major liquidity zones.
  
• Optimal Entry Methods Vary – Aggressive entries capitalize on immediate rejection, while confirmation and retracement entries improve accuracy.
  
• Proper Stop Loss Placement Prevents Fakeouts – Placing SL just beyond the rejection wick or using structure-based stops reduces premature exits.
  
• Take Profit at Key Liquidity Levels – Secure profits at previous swing highs/lows, order blocks, or imbalance zones to maximize returns.