From Single Candlesticks to Swing Comparisons

10.1 Swing Segmentation Rules and Observation Scale

In this course, a swing is sustained price movement from one identifiable turning endpoint to another on a selected observation scale. It is neither a fixed number of bars nor every small retracement. Define purpose and scale before segmenting: the structural timeframe identifies major trends and ranges, the trading timeframe compares tradable advances and reactions, and the entry timeframe describes local triggers only. Changing scale changes endpoints and the number of swings.

Segmenting swings compresses continuous changes into comparable advances and reactions. The trade-off is that opposing movement below the threshold remains within one segment, and segmentation does not recover intrabar order sequence. A swing is therefore not a uniquely natural market unit. Too fine a scale creates many endpoints from minor fluctuations; too coarse a scale conceals structural change. Choose the scale for the analytical question, fix endpoint and threshold rules, then use those same rules for comparisons over time.

This course offers an executable endpoint convention. Before analysis, fix a positive integer k satisfying k > 0 and use completed bars only. If bar t’s high is no lower than the highs of the preceding k and following k bars, mark it as a local-high candidate. Local lows use the corresponding “no higher than” test. Because the k bars to the right must finish, confirmation is possible no earlier than t+k. k is an observation-scale parameter, not a universal Wyckoff threshold. For equal highs or lows, use the earliest bar on the same platform as the endpoint and include the equal-price continuation in the endpoint area. If the trading purpose emphasizes the last defended location, the last bar may instead be chosen in advance, but the rule must remain consistent across the full sample.

If two consecutive candidates in the same direction have no confirmed opposing endpoint between them, retain only the higher high or lower low; merge ties under the chosen rule. An upward or downward swing forms only after high and low candidates alternate. If one bar is both a local high and low, OHLC cannot establish their intrabar order. Mark it “dual-extreme sequence unresolved” and do not construct a definite round-trip swing until finer trade-by-trade data are available. This convention facilitates consistent checking and may be replaced by a predefined volatility-threshold method, but rules cannot be changed after seeing the outcome.

Each swing needs starting and ending endpoints, direction, start and confirmation times, and a distinction between completed and developing status. Endpoints are analytical tools, not the market’s uniquely correct segmentation; two reasonable scales may both be valid. Only one consistent endpoint rule makes comparisons of magnitude, time, and volume meaningful and prevents arbitrary retrospective relocation.

An endpoint algorithm simply converts continuous price action into comparable objects. A smaller k retains more local fluctuations; a larger k filters short swings. Changing k requires recalculating swing volume, duration, and the SOT sequence. Structural and entry timeframes may each use different preset parameters, but conclusions must state their scale. Parameters cannot be switched after seeing results to retain favorable endpoints.

10.2 Identifying Upward and Downward Swings

An upward swing develops from a selected local low to a subsequent local high. It may contain small declines as long as they do not confirm an opposing swing at the current scale. A downward swing moves from a local high to a subsequent low. Direction is defined by net endpoint change; several bearish bars inside an upward swing do not justify fragmenting it, nor does one rally necessarily end a downward swing.

Real-time identification distinguishes “in progress” from “confirmed.” As price advances from a confirmed low to new extremes, the upward swing is developing. Only when subsequent opposing movement meets the reversal rule is the high confirmed. Updating the latest extreme with new price is normal. Preserve the status known at the time so a high confirmed later is not used prematurely for a trading judgment.

Gaps, price limits, and rapid illiquid crossings remain part of price movement but may achieve substantial displacement with little volume. For swings spanning sessions, state whether overnight change is included. If price adjustments or continuous-contract adjustments change historical endpoints, use the same data version for comparison rather than combine highs and lows from different adjustment methods or contract series.

A developing swing has only a confirmed start; its endpoint updates with fresh extremes. If bar t meets local-extreme conditions at t+k, that means only the candidate can then be confirmed. If a higher same-direction candidate appears before alternating high and low endpoints are established, the retained endpoint is still replaced under the rules. The previous swing is finalized only once an opposing endpoint is confirmed and alternation forms. Backtests must preserve these states over time rather than treat the final replacement endpoint as known early. Current upward net displacement may be compared with historical swings at the same elapsed time, but cannot support a completed-swing conclusion.

Whether an internal retracement ends the current swing depends on the scale’s confirmation rule, not bullish or bearish bar counts. An upward swing can include several falling bars while a new local low remains unconfirmed; the mirror applies to declines. A gap changes endpoint distance, but volume measures actual trades and cannot count an overnight blank as activity. Separate overnight gaps, intraday movement, and executed volume when comparing swings.

10.3 Magnitude, Duration, Volume, and Progress Efficiency

Swing magnitude usually means the absolute distance between endpoints. Net progress is the directional change from start to finish; in an endpoint-defined swing their numerical magnitudes may match, but neither equals the total path traveled between bars. Accumulate volume over a left-open, right-closed interval: exclude the preceding endpoint bar and include the current swing’s endpoint bar to avoid double-counting shared endpoints. Measure duration over the same boundaries using elapsed time or comparable trading periods. The k right-side bars needed for confirmation belong to the following process and must not be added retrospectively to the prior swing’s volume.

An endpoint may occur inside a bar, while bar volume covers the entire period. Assigning the whole endpoint bar to the swing is only an OHLC aggregation approximation; it cannot show how much traded before versus after the extreme. Precise allocation needs timestamped transactions or finer bars, segmented again according to the extreme’s actual timing. Do not assign volume precisely when the order of two extremes within one bar is unknown.

Incremental extreme distance measures only the current endpoint’s extension beyond the preceding same-direction extreme. A new upward swing may have large overall magnitude but little extension above the prior high if its starting point is also much lower. This measure asks how far the trend’s frontier advanced, whereas whole-swing magnitude includes recovery of old ground. Confusing them hides changes in trend efficiency.

Compare adjacent same-direction swings to assess progress efficiency: Does net displacement expand with similar time and activity? Does greater volume and time instead produce a shorter extension beyond the prior same-direction extreme? Simple ratios can help, but they are not fixed physical efficiencies; price discreteness, volatility, and liquidity affect them. Also examine internal overlap, closing position, and the amount reclaimed by the next opposing swing.

Separate total volume from activity per unit of time. Greater swing volume may merely reflect a longer duration. More volume per unit of time shows concentrated activity but still requires checking the net displacement and new-extreme distance produced. Ratios such as net displacement/total volume or incremental distance/time may help rank observations, but zero or missing volume and extremely short durations distort them. Price movement is not a mechanical energy conversion.

Equal numerical magnitude and directional displacement in an endpoint-defined swing do not mean the path was uninterrupted. Internal bars may overlap heavily and retrace repeatedly. Include internal coverage, retention at the close, and the immediately following counter-swing to distinguish smooth progress from an endpoint barely reached after repeated contention.

10.4 Comparing the Current Advance with the Previous Advance

For same-direction advances, first standardize scale, then record endpoints, full magnitude, incremental distance above the prior high, duration, accumulated volume, internal overlap, and ending behavior. Farther extension beyond the prior high in less time with less overlap and a close near the highs indicates improved buying efficiency. More activity with shorter incremental distance and more upper wicks and overlap suggests reduced demand efficiency or greater supply influence.

Shortening of the Thrust (SOT) specifically means successive same-direction advances create new extremes with progressively shorter increments beyond the preceding same-direction extreme. In an uptrend, compare the new high’s extension beyond the prior high, not the whole low-to-high swing. A rally starting very low may have a large full magnitude while barely exceeding the previous high. This illustrates why the measures cannot be interchanged.

In Villahermosa’s SOT teaching, observe at least three successive same-direction advances and compare whether each new high’s increment beyond the preceding high is shortening. “Three” establishes an observable sequence; it neither guarantees reversal after the third thrust nor implies that fewer than three provide no slowing clues. Consider a turn only after a significant opposing advance or reaction appears. The clue is more meaningful near resistance in a mature advance.

Price-volume combinations suggest different mechanisms. High volume with shorter incremental distance may reflect resting sells persistently absorbing aggressive buys or supply broadly offsetting the advance. Volume and incremental distance shrinking together may indicate exhausted demand. Lower volume with stable continued new highs may indicate sparse supply. Also assess expanding reactions and returns into the breakout area; SOT alone cannot justify a short.

10.5 Comparing the Current Decline with the Previous Decline

Apply the same comparison to declines: full magnitude, incremental distance below the prior low, time, accumulated volume, internal rallies, and closing position. Expanding new-low distance, brief rallies, and persistently lower closes show sellers continuing to depress price. Greater activity with smaller new-low progress, more lower wicks, and greater overlap may indicate buying support or merely proximity to price limits or changed liquidity.

Downward SOT compares each new low’s extension below its predecessor. Successive new lows still mean supply is progressing, but by smaller increments; the first message is slowing. Demand achieves an opposing result only when a subsequent larger upward swing with strong closes breaks the earlier rally structure. Without that result, premature buying mistakes “falling more slowly” for “starting to rise.”

Under Villahermosa’s convention, downward SOT likewise observes at least three successive advances to new lows, measuring only each low’s extension beyond the previous low. It does not measure the full current high-to-low swing or substitute bar count or total days declining. At the third shortened increment, sellers are still producing new lows, just by smaller distances. The decline can continue if buyers have not yet pushed through a rally high.

Distinguish high volume with little progress from simultaneous price-volume contraction. The former may mean demand absorbing selling at support, an explanation strengthened by an expanding subsequent rally. The latter may mean exhausted supply or simply little participation by either side during a quiet period. A low-volume decline still producing large new-low extensions may reflect withdrawn demand. Compare matching sessions, similar volatility conditions, and completed swings, then confirm through demand’s ability to cross a rally high.

How a decline ends also affects trading. Shorter supply-driven progress may justify stopping the pursuit of shorts or tightening management. A long still requires buying support near support, an upward structural break, and definable invalidation. If price again breaks support with a larger incremental distance, the observed slowing did not persist and no longer supports expectations of further supply weakening.

10.6 The Relationship between Advances and Reactions

Trends alternate between progress in one direction and reactions in the other. In an uptrend, upward progress is the main movement and downward swings are reactions; a downtrend is the reverse. Compare extension beyond the preceding same-direction extreme, the portion reclaimed by the reaction, each movement’s duration and volume, and the speed of resumption afterward. A shallow reaction is not merely a percentage: it also matters whether the key breakout area and previous structural low hold.

A healthy upward rhythm usually retains rising highs and lows, with reactions not persistently entering beneath old support. Deterioration may involve shorter advances, larger reactions, and increasingly slow recovery. A healthy decline uses the opposite logic. One anomaly may arise from news or liquidity, while the same change across several successive advance-reaction pairs provides stronger evidence.

Pair advances and reactions using the same scale and endpoint rules. After an upward advance ends, measure the reaction’s retracement ratio against that advance’s endpoints. If the reaction is unfinished, only the provisional result at the observation time is available. A large reaction in little time shows increased opposing speed; a long, high-volume reaction still holding the breakout area may simply reflect continuing turnover. No single measure replaces whether structure has been damaged.

Same-direction comparisons ask whether the original force is improving; cross-direction pairs ask how much the opposing side reclaimed. Shortening incremental advances accompanied by shortening reactions may leave the trend intact. Shorter advances with larger reactions and slower recovery more clearly show deteriorating rhythm. An opposing swing crossing key structure and trading outside further supports reversal.

Volume pairing must account for elapsed time. Greater cumulative volume on a longer reaction does not mean strong supply; also inspect activity per unit of time and downward net displacement. A low-volume reaction that quickly damages support is not healthy contraction. Trading management uses predefined protection, while full analytical swing confirmation may occur later. Neither should delay the other.

10.7 Endpoint Confirmation, Future Information, and Repainting

Swing endpoints can be confirmed only after subsequent opposing movement meets predefined conditions, so every endpoint algorithm has confirmation delay. Real-time records must distinguish candidate extremes, confirmed endpoints, and confirmation timestamps. Treating the extreme’s occurrence time as the time its endpoint was known in a backtest uses then-unavailable future information and exaggerates rule precision.

Tools such as ZigZag extend their last segment with new highs or lows and may move candidate endpoints before the reversal threshold is met. This “repainting” can organize structure retrospectively, but the final line cannot be treated directly as a real-time signal. Validation must run chronologically and preserve the tool’s state at each moment. Only trading rules dependent on confirmed endpoints must trigger after confirmation; other predefined intrabar-price, trade-by-trade, or order-book triggers need not await that algorithm. Parameter changes also resegment historical swings, so lock the version for statistical analysis.

Avoiding future information does not prevent swing analysis. Confirmed endpoints compare completed swings; unfinished swings must be marked “in progress” and use only data available before the observation time. Retrospective structural relabeling can support research but must remain separate from contemporaneous trading records. Every judgment uses only information already available, clearly distinguishing unfinished bars, candidate endpoints, and confirmed endpoints. Intrabar rules may trigger from data already formed at the time, but cannot borrow later outcomes.

The backtest engine must apply the same rules to tied extremes and dual extremes within one bar. If the first tied extreme defines the endpoint, later equal-price bars extend only its area without changing the extreme price. If the last bar is chosen, confirmation timing and volume allocation change accordingly. Software must not arbitrarily assume high-before-low when OHLC cannot order dual extremes. Retaining an unresolved state is more reliable than fabricating a perfect turning point.