How to trade 2b reversals
The 2b reversal chart pattern is without a shadow of a doubt my all time favourite chart pattern to trade. For me the 2b reversal epitomises everything about the way the price moves, support becomes resistance, stop hunting and market makers / dealers games.
The 2B principle gets its power from the large number of stop-loss orders in the area of the X. Many traders who bought the breakout will have their stop-loss orders there, so if prices fall below the blue line those stops will be hit, driving prices back down with thrust. If you enter a short as the breakout traders are bailing out of their positions, the burst of selling can propel your trade into the green so quickly that, before you can enter your stop-loss order, prices have moved far enough in your favor to set your initial stop-loss at break even. The inverse is equally effective for 2B bottoms.
Another name for the 2B is “spring.” Imagine the blue line in the graphic as a rubber band. The bigger the poke above the blue line, the stronger the reversal potential if the breakout fails. This same principle works on failed triangle breakouts and failed trendline breakouts. If you were unfurtunate and bought the breakout, instead of putting just a stoploss at the X, consider making it a stop-and-reverse. This pattern occurs at the tops and bottoms of consolidations as well as at major reversals.
Reverse the rules to trade a 2b reversal long, in an uptrend.
I have studied 2b reversals for years now, they work the same day in day out. Don't take the patterns too literally, it is not about the number of bars / candles, it is just about how the market makers have pushed the price through support and resistance in order to manipulate the markets. 2b reversals work on every timeframe on every currency, index or commodity.
Watch my short 2b reversal video below.