Trading 2b Reversal Setups

This was a trade taken based on yesterdays daily shooting star candle on Oil, also called an inverse hammer candle.

It was just too tempting not to have a go at this risky trade. The stop loss and target were very clear from the outset so it was a very clear Risk Reward trade.

See the shooting star candle on the daily chart below. Normally you would trade the break of the low of that bar, however I used the H1 and M15 chart for my moving average crossover entry.

My apologies for the odd looking charts, I am trying to remove anything that complicates my descision making process.

The H1 chart is below.

M15 chart below shows the 123 entry and the 15 min candle and white MA closing through the yellow MA.

I left this trade on overnight. Closed 75% at 85.90 when I got up this morning,  Oil is generally a fast mover and I had hoped my target would have been hit during the night.

I will show the chart above with all the indicators removed to explain the 2b reversal setup used to enter my long trade. Se diagram below.

I personally learned how to trade across all time frames with the help of the fantastic team at the www.fx500club.com They have a live forex chat room and share their charts so that you can watch them find potential trades in real time.

They also have a school for learning how to trade longer term charts at www.fxmonkeyschool.com.

The fx500club and fxmonkeyschool, forex trading school don’t just trade charts and indicators alone, they teach us to use correlation of the whole market before entering a trade. It truly is the best place to learn how to trade forex properly, safely and profitably. It’s all about the pips and about protecting your capital.

Click Here to get a FREE days entry into the fx500 club live trading room

Always Remember.

Keep your risk as a percentage of your capital low (1%), equals stress free trading.

Always work out potential losses before potential profits.

We are paid to take risks, if you aren’t in a trade you cannot win a trade!!

Buy off support and sell off resistance.

Bank partial profits early and move your stop loss to break even as soon as you can.

CLICK HERE To join my mailing list where I will be sharing my extensive result from trading with the fx500club and Zulutrade automated trading and other Expert Advisors automated trading systems

Click Here to get a FREE days entry into the fx500 club live trading room

2b reversal and 123 reversal trading instructions

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A change of pace today people and possibly the best bit of free forex trading information you will ever find online. I must apologise for my lack of posts over the last few days, not because I haven’t been trading or making pips, I just felt like a break from making charts and typing.

Anyway before I post details of a fantastic place to learn how to trade the daily charts I will post this mornings bread and butter trade that pays my bills. A cable long trade for a quick  30 pips. It was just a breakout trade as shown on my chart below.

This was a very straight forward trade, you can see my descending trendline, the moving averages were all pretty close together acting as support below the price, the cci 21 and 63 were crossing from below zero to above, I entered long at 1.6396, my stoploss at 1.6377, I banked 75% at 30 pips profit and will leave the rest on .

Dan Armitage one of the forex mentors / teachers in the www.fx500club.com  had different ideas to me, same trade just a different and deffinately safer entry at the break of the old high at 1.6412. The theory was the same so I am pleased with my analysis.

Ok on to the fantastic daily trade that I found whilst doing my weekend forex trading research.  The link to the thread about how to learn how to trade the longer term timeframes like the daily and weekly is below, just in case you are bored with my ranblings.

http://www.forexfactory.com/showthread.php?t=155459

Strat, the guy that the thread belongs to is a truly amazing forex trader and proved his huge knowledge of the forex markets by taking multiple trades at once and he trades with big money, I cannot remember exactly how much but $100 a pip wouldn’t surprise me. So 100 pips is ten thousand dollars. I have copied and pasted his trades from his thread below. It takes real balls and incredible forex knowledge to take just one of those trades let alone all of them simultaneously.

STRATS TRADES

“AUDJPY entered long above 7/13 hammer/BUOB and cycle bottom
AUDUSD ditto
CHFJPY ditto
EURJPY ditto
NZDJPY ditto
NZDUSD ditto
USDJPY ditto
EURCAD short from 7/1 BEOB on Sunday bar and again below 7/13 BEOB and again below 7/14 bar (broke support)
GBPJPY entered long above BUOB on Sunday bar at cycle bottom and confluence with other JPY pairs
GBPUSD ditto
USDCAD short as per previous post”

I will show you my charts for the aud/jpy trade to explain his entry.

Strat trades many different styles and systems but in order to keep thing simple for novice traders his thread is about how he trades the daily charts using price action at support and resistance using candlestick and pricebar analysis along with moving averages. Strat describes how to use hammers, shooting stars (inverted hammers), and outside bars to signal his entries on the daily charts. There are two types of outside bars he uses, the bearish outside bar / candle ( beob ) and the bullish outside bar / candle (buob ).

The two moving averages that strat uses for his daily chart analysis are the daily 20 ema and the daily 50 sma, he also uses the weekly 20 and 50 moving averages (the daily 100 and 300). Strat refers to the daily charts as the WORKER and the weekly charts as the BOSS. Don’t quote me on any of these technical settings, go and read his thread YOURSELF.

Do yourself a favour and read, read and then re-read his thread, it will make you very wealthy.

Cable Update now over 100 pips in profit from this mornings trade, THANKYOU www.fx500club.com .

Back to Strats charts and his aud/jpy trade from a hammer candle which also happened to be a bullish outside bar (beob) on the daily chart.

As you can see from the daily aud/jpy chart above the verticle red line shows an inside bar on the 12th, an inside bar usually signifys uncertainty, the buyers and sellers are unsure which way to go. The next bar is a hammer, checkout my candlestick analysis videos at this link, http://www.forex-experts.co.uk/acatalog/Candlestick-Videos.html .

A hammer candlstick has a long tail or wick below a short body, this shows that the sellers tried to push the price down and got beaten by the buyers, a very bullish signal when at a strong support level, as you can see at this stage we had three daily bars that had tested the 71.00 level, a triple bottom another strong bullish signal. I dont know exactly where Strat took his long entry but anywhere after the colse of that daily hammer is good at about 72.98, the target would be the descending trendline at about 76.00 300 pips away.

Ok I am going to add my 2 pence worth and show how I should have taken this trade had I been watching the daily charts. It’s based on the 2b. It enables you to get a very tight entry with a very small stoploss, in this case 71.40 with a stoploss at 70.50.

The two red X’s are the most recent tests of the 71.00 level a double bottom , part of the triple bottom i refered to on the daily charts. The red horizontal line is the previous low which represents swing 1 of the 2b setup, the bar that this cuts through represents the trigger bar, once the price moves up and closes above the triggers high we can then enter a long trade.  The initial target for this 2b would be the high of swing 1 at about 73.00. The 2b is a brilliant price reversal pattern that give tight stops and good targets, brilliant for a profitable reward risk ratio, normally 3 or 4 to one.

Strat must have made 1000′s of pips from all those trades he took, that in it’s self is astounding, but what is even more astounding is that he took them all at the same time, true genius and thankyou Strat if you ever read this for taking the time to try to teach others how to trade the daily charts FOR FREE, NO PERSONAL GAIN WHATSOEVER.

I make my charts after every trade I take, I post some to this and other websites and blogs in order to help other learn to trade. It also helps me to improve my trading, so not totally selfless, lol. Onwards and upwards folks, we are here to beat the brokers.

Commission free managed forex accounts Click here to see how Zulutrade do it and take the free trial demo

Click here to join my newsletter and receive information of Zulutraders that I am trading real money with. I will also be providing other useful FREE help and info to aid your profitability and help us all beat the brokers. 

They also have a school for learning how to trade longer term charts at www.fxmonkeyschool.com.

The fx500club and fxmonkeyschool, forex trading school don’t just trade charts and indicators alone, they teach us to use correlation of the whole market before entering a trade. It truly is the best place to learn how to trade forex properly, safely and profitably. It’s all about the pips and about protecting your capital.

CLICK HERE To join my mailing list where I will be sharing my extensive result from trading with the fx500club and Zulutrade automated trading and other Expert Advisors automated trading systems

Click Here to get a FREE days entry into the fx500 club live trading room

This was a perfect 2b reversal trade that I took whilst using the other trading strategies taught in the www.fx500club.com live online trading school.

The thick blue line is the 200 moving average and is often used as support or resistance for the price so it is also a perfect point to look for the classic 2b reversal pattern. Notice also that the stocastics were below 80 showing a loss of downward momentum and that sellers were losing ground to the buyers.

0.9243 was the previous low and created the trigger bar with the high of 0.9257 which also happened to be the daily pivot point. Once the price had closed above that we were safe to go long with a stop below the low at 0.9230. You nearly always get a pullback to the old low level at 0.9423 so I dropped down to the 5 minute chart in order to get a tighter entry and reduce my stop loss / risk. I went long at 0.9250 my target according to the rules of 2b was the old high 0.9284.

Trading 2b reversals is just one of the many methods of trading forex I like to use. I predominantly trade the strategies taught in the www.fx500club.com but always have an eye out for other high probability methods of entering and exiting my trades.

Click Here to get a FREE days entry into the fx500 club live trading room

Always Remember.

Keep your risk as a percentage of your capital low (1%), equals stress free trading.

Always work out potential losses before potential profits.

We are paid to take risks, if you aren’t in a trade you cannot win a trade!!

Buy off support and sell off resistance.

Bank partial profits early and move your stop loss to break even as soon as you can.

I am learning how to trade these setups and indicators across all time frames with the help of the fantastic team at the www.fx500club.com They have a live forex chat room and share their charts so that you can watch them find potential trades in real time.

They also have a school for learning how to trade longer term charts at www.fxmonkeyschool.com.

The fx500club and fxmonkeyschool, forex trading school don’t just trade charts and indicators alone, they teach us to use correlation of the whole market before entering a trade. It truly is the best place to learn how to trade forex properly, safely and profitably. It’s all about the pips and about protecting your capital.

CLICK HERE To join my mailing list where I will be sharing my extensive result from trading with the fx500club and Zulutrade automated trading and other Expert Advisors automated trading systems

Click Here to get a FREE days entry into the fx500 club live trading room

This 2b reversal trade was a beauty, I was trawling the 60 minute charts for any setups using what for me is proving to be the simplest method, that is checking the cci 21 and cci 84. When the 21 is below zero and the cci 84 above it clearly indicates a retracement against the 4 hour upwards trend.

I then noticed a formation that I used to trade with mixed success the “2b reversal” google it for more info. I am having more success using it now because I have learned so much more about trading using trendlines, support and resistance and moving averages from being in the live online trading school, the www.fx500club.com. I now just use the 2b reversal formation to confirm tight trade entries.

I have included the charts for both the 60 minute and 15 minute timeframes below.

15 minute chart below

Always Remember.

Keep your risk as a percentage of your capital low (1%), equals stress free trading.

Always work out potential losses before potential profits.

We are paid to take risks, if you aren’t in a trade you cannot win a trade!!

Buy off support and sell off resistance.

Bank partial profits early and move your stop loss to break even as soon as you can.

I am learning how to trade these setups and indicators across all time frames with the help of the fantastic team at the www.fx500club.com They have a live forex chat room and share their charts so that you can watch them find potential trades in real time.

They also have a school for learning how to trade longer term charts at www.fxmonkeyschool.com.

The fx500club and fxmonkeyschool, forex trading school don’t just trade charts and indicators alone, they teach us to use correlation of the whole market before entering a trade. It truly is the best place to learn how to trade forex properly, safely and profitably. It’s all about the pips and about protecting your capital.

Red X marks the poke bar, the price needs to close below that in order for a 2b reversal short entry to be triggered, The stocastics were above the 80 level so it looked like the buyers had run out of steam.

Looking at the same setup using the fx500club indicators we can see the moving averages and the daily pivot were clearly acting as resistance above the price. Just an added confirmation that this 2b reversal setup was indeed a valid one.

13.15 on the 19th was the high of swing 1 and as such was the ultimate profit target for this 2b reversal long trade. The red x marks the poke bar between points 2 and 3, once the high of that bar had been broken that was our signal to go long. Strict 2b rules suggest we wait for a close above that bar but I generally look for a close above it using the lower time frame, in this case the 5 minute chart.

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"]

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.

below is the 123 reversal when the price fails to make a lower low or higher high and resumes the trend

1. trend line broken
2. lower high in an uptrend, or a higher low in a downtrend.
3. break below the previous low in an uptrend, or above the previous high in a downtrend

Click Here to get a FREE days entry into the fx500 club live trading room

Always Remember.

Keep your risk as a percentage of your capital low (1%), equals stress free trading.

Always work out potential losses before potential profits.

We are paid to take risks, if you aren’t in a trade you cannot win a trade!!

Buy off support and sell off resistance.

Bank partial profits early and move your stop loss to break even as soon as you can.

I am learning how to trade these setups and indicators across all time frames with the help of the fantastic team at the www.fx500club.com They have a live forex chat room and share their charts so that you can watch them find potential trades in real time.

They also have a school for learning how to trade longer term charts at www.fxmonkeyschool.com.

The fx500club and fxmonkeyschool, forex trading school don’t just trade charts and indicators alone, they teach us to use correlation of the whole market before entering a trade. It truly is the best place to learn how to trade forex properly, safely and profitably. It’s all about the pips and about protecting your capital.

CLICK HERE To join my mailing list where I will be sharing my extensive result from trading with the fx500club and Zulutrade automated trading and other Expert Advisors automated trading systems

Click Here to get a FREE days entry into the fx500 club live trading room

2b reversal and 123 reversal trading instructions