This Lesson Can Be Printed - See Instructions Below.
Two Period Reversal Pattern
The two period reversal is originally taken from the 2-day reversal pattern and as the name implies this particular pattern consists of two periods. I use two periods and I apply this pattern to all securities and time frames. A period could be 1 minute or 1 month depending on the time frame you are looking at. I like to see this pattern after a strong move up or down. It does not work in periods of consolidation.
For the two period reversal down, the first period should be at the end of a strong move up. The close should be near the high and it is preferable that this high should be a new recent high. The second period should open near where the first period closed and should lose most if not all of the first periods gains and close near the low of the first period (see first chart).
Once set up you can now enter the market long with a stop loss order below the low of the lowest low of the two periods. With both the up and down reversal there may be some retracement before the trade takes off but it should not pass below the low of the two periods or the high of the two periods depending on which direction you are trading.
I have found this trade to have a high probability of success, it does not however happen that frequently in the markets I have observed. It does however happen with sufficient frequency to have it on your list of set ups to look out for.
Information, charts or examples contained in this lesson are for illustration and educational purposes only. It should not be considered as advice or a recommendation to buy or sell any security or financial instrument. We do not and cannot offer investment advice. For further information please read our disclaimer.
To PRINT or save a copy of this lesson in PDF format simply click the PRINT link. This will open the lesson in a PDF format which, you can then PRINT. If you are unfamiliar with PDF or don't have a FREE copy of Arobat Reader see instructions.