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What is a 2-Bar Reversal Pattern

10 Aug 2023

Introduction

Technical traders and price action traders rely on candlestick patterns to identify opportunities in trading. When the indicators are combined with candlestick patterns and previous experience, the results are fascinating.

Success in Financial Market depends on a trader's ability to predict the upward and downward trends before they occur. Of the many technical analyzes and tools available for identifying and predicting price movement trends, the two-bar reversal pattern is an important one which can help a trader get the best out of his investments.

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What Is The 2 Bar Reversal Pattern?

-In a 2-bar reversal pattern, there are bullish and bearish reversal patterns. In a bearish 2-bar reversal pattern, the first bar goes up and shows that the market is going up, then the second bar forms, which reverses from the previous bar’s highs and goes further lower on the chart. This signifies trend reversal.

-In a bullish 2-bar reversal pattern, the price first goes lower than the previous day's low and then closes at a price higher than the previous day's close.

-Suppose there is a high movement for a long time; when this pattern forms on the chart, it signifies that the markets are making reversals and going on the opposite side significantly.

What Are The Characteristics Of The Best 2 Bar Patterns?

2 bar patterns are found in plenty, but not all of them should be traded. If you want to trade the best 2 bar patterns, you should know the characteristics of the best. So below are the characteristics of the best 2 bar patterns.

  • The bars will show significant overlap.
  • There will be a strong push in the direction of two bar formations.
  • The best patterns will always stand apart from the noise and be easy to identify. Usually, they are found at the end of trends.

How To Trade This Pattern?

Depending on your risk appetite and trading approach, there are two ways that you can trade this reversal pattern.

  • For Traders with High Risk-Appetite - Enter the market as soon as the price breaks out of the first bar. The idea is to catch the momentum of potential trend reversal early. The approach is aggressive as the trader enters the market even before the pattern fully forms.
  • For Risk-Averse Traders - The best time to enter a trade with this pattern is to wait till breakouts. In a bullish reversal pattern, you should wait till the second bar breaks previous highs. In a bearish scenario, you should wait till the second bar penetrates below previous lows. 

After knowing about the reversal patterns, you are more than ready to ride market reversals and make good money. So, look no further, open a trading account with us, and start trading today. 

 

Related Articles: Swing Trading Vs Position Trading Overview Of 3 Bar Reversal Indicator | Guide to Parabolic SAR IndicatorUltimate Guide to Positional Trading

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