Chapter 03
Every visible swing high on a chart has buy stops resting above it. Every swing low has sell stops resting below it. Those clusters of resting orders are pools of liquidity, and professional traders know where every one of them sits.
Large players need that liquidity because they need counter flow to enter positions. For every buyer there is a seller. A fund that wants to buy in size gets its fill where other people are forced to sell: right below a swing low, where longs are being stopped out and breakout shorts are jumping in.
That is why the market so often trades to an obvious level, takes it out by a few ticks, and reverses. It is not out to get you personally. Your stop is just parked in the same pool as everyone else's, and that pool is the fuel for the next real move.
Two sweeps can look identical and resolve in opposite directions. The filter is the close. A valid bullish sweep trades below the swing low and then closes back above it. The failure to hold below the level is the information.
Once price closes back above the swept low, three things are confirmed on the chart at once: the sell stops below the low were flushed at a loss, new shorts who sold the breakdown are trapped, and the buy limits that sat under the low are already in profit. All three groups now push the same direction.
If price breaks the low and closes below it, there is no failure and there is no trade. That single distinction, close back inside versus close beyond, is the difference between trading a sweep and getting swept.
A swing failure is when price briefly breaks a significant swing high or low, then quickly reverses and closes back within the previous range. It failed to sustain the move. That failure marks a liquidity grab and a potential reversal.
The pattern only means something at a level where stops actually rest: an untraded hourly swing point, a previous daily high or low, a session extreme. A wick through a random price in the middle of a range is noise, not a swing failure.
Kyle's system treats the swing failure as the confirmation event. The level tells you where to watch. The swing failure tells you the trap has sprung. Only then does the entry process start.