2# 2B pattern Trading System
Reversal Trading Technique
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2B for the first time pattern (excellent and very strong reversal trading technique) has been described in the book of Victor Sperandeo. pattern 2B apply as soon as the market price creates a new maximum or minimum, and then significant pullback. Following the implementation of the rollback, the price is once again trying to test generated a maximum or minimum price. Once this testing of “new” maximum or minimum is unsuccessful, it is a signal of potential reversal previous price trend.
In an uptrend, if prices penetrate the previous high but fail to carry through and immediately drop below the previous high, the trend is apt to reverse. The converse is true for downtrends."
[Vic Sperandeo in "Trader Vic: Methods of a Wall Street Master"]
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 unfortunate and bought the breakout, instead of putting just a stop loss 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.
When market makes new high or new low, there is always a pullback .After the pullback the market will retest the previous high/low. If the market fails to hold the new high/low, it signals a potential trend reversal.
Trades orders are entered to sell the low of the bar trying to breakout or buy the high of the bar trying to breakdown. Target: The target is usually the ‘swing low’ prior to the new high or ‘swing high’ prior to the new low. Stop: Protect your ‘long’ trade entry by placing a ‘stop’ below the recent low and protect the ‘short’ trade entry by placing a ‘stop’ above the recent high.
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