RSI Failure Swings: Trading the RSI the Wilder Way!

by Elearnmarkets on Indicators & Oscillators, Technical Analysis
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The Relative Strength Index or popularly called the RSI is one of the most popular momentum oscillators used by technical traders worldwide. Developed by J. Welles Wilder, Jr. during the 1970s, the indicator helps to quantify the changes in price and its momentum.

The very fact, that the indicator is still in use and is a part of almost all the charting software packages out there speaks volumes about itself and bring us to the conclusion that solid logic never goes out of style!

There are various ways of using the indicator. Here we will discuss a special technique called the Failure Swing that Wilder noted in his seminal work, New Concepts in Technical Trading Systems.

He further added that “Failure Swings above 70 or below 30 are very strong indications of a market reversal.”

What is an RSI Failure Swing? 

A Relative Strength Index Failure Swing is an advanced technique of trading RSI Divergences.

In case of an RSI divergence, both price and the indicator diverge from one another indicating loss of momentum in the trend.

In case of an RSI failure swing, the same phenomenon takes place with a confirmation of trend change on a break of the fail point on the indicator.

One can wait for a failure swing to emerge on the charts to take more confirmed trades.

Failure swings are of two types, namely Failure Swing Top and Failure Swing Bottom. A discussion on both the formations is as follows:

Failure Swing Top: A failure swing top takes place when price makes a higher high but RSI fails to make a higher high and falls below the recent swing low (fail point) of the indicator triggering a sell signal.

More importantly, during the first high RSI goes above the 70 overbought level while during the second high, the indicator makes a swing high below the 70 overbought level.

Failure Swing Top

Let’s take a look at an example. On the following hourly chart of State Bank of India, we can clearly see that the impending sell-off was foretold by the indicator.

Failure Swing Top

Failure Swing Bottom: A failure swing bottom takes place when price makes a lower low but RSI fails to make a lower low and rises above the recent swing high (fail point) of the indicator triggering a buy signal.

More importantly, during the first low RSI goes below the 30 oversold level while during the second low, the indicator makes a swing low above the 30 oversold level.

Failure Swing Bottom

In the daily chart of Asian Paints, we can clearly see how the stock picked up steam after the failure swing bottom was formed on the RSI indicator.

Failure Swing Bottom

To conclude, we can say that trading RSI failure swings could be a great way to trade off the charts that can have a positive impact on your portfolio.

To know more about technical analysis you may enroll for: NSE Academy Certified Technical Analysis course on

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Disclaimer wants to remind you that all our content is created solely for the purpose of education. No strategy, stock, commodity, fund or any other security discussed here is any way a recommendation for trading or investing. will not be any way responsible for trading losses incurred by any individual or entity for trading with real money. Please take advise of certified financial advisers before trading or investing.


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