2 bar reversal Indicator

2 Bar Reversal is one of the most common price action patterns found across the financial markets. This price action indicator is a reversal indicator, as its name suggests. Due to its nature as a reversal signal, traders should only use it to enter during pullbacks rather than as a continuation play. It is a pure price action trading signal indicator for Metatrader 4 that does not repaint. We will discuss the 2-bar reversal indicator including how it works and how to trade with it in this article.

What is the 2 bar reversal Indicator?

Simply put, a “2 Bar Reversal” is essentially a “Pin Bar Reversal” that takes place throughout two trading sessions. The thought process behind a 2-bar is identical to that of a pin-bar. When we use either indicator, we expect the price to move in one direction before changing direction quickly to trick traders. In price action trading, a 2-bar reversal set up is just a trade setup that suggests a reversal. The reversal signaled by the 2 bar setup can represent a reversal to the main trend or only a corrective move or retracement inside the primary trend.

With the 2 Bar Reversal indicator, you can get buy and sell signals based on the 2 Bar Reversal pattern. After the price breaks the bar to the upside and the indicator paints a BUY/LONG arrow in blue, you may enter the buy trade. The same approach that applies to a buy setup and entry also works for a sell entry. Also, for the best results, the indicator should be used along with technical analysis and/or other trading indicators.

2 bar reversal Indicator Strategy

Two candles, or bars, make up the “2 Bar Reversal.” The first bar of the reversal pattern must close higher than it opened for it to be considered a bearish 2-bar reversal. The opening of the second bar should be followed by a sudden reversal to the downside, signaling a rejection of the highs made in the first bar and tricking traders into selling. As soon as this occurs, the 2-Bar Reversal Indicator will draw a red arrow, signaling the trader to sell. A similar approach can be made for 2 Bar Reversal buy setups.

Simply place a buy trade order when the blue 2 Bar Reversal signal arrow shows on the chart. Open a sell trade order when the 2 Bar Reversal indicator’s red arrow shows on the chart. As a general rule, most ideal 2 Bar Reversals can be identified when the market is trending strongly and makes a pullback to a reasonable level of support or resistance. Traders could use the 2 Bar reversal as an entry signal with the trend in these reasonable supply and demand zones.

You may trade 2 Bar Reversals in any market you choose. Since 2 Bar Reversals are reversal signals, they are often the signal that causes the trend to reverse directions. But just because a trader sees a 2 Bar Reversal doesn’t mean they should trade it. Not all 2 Bar Reversals have the same probability of success. Consider combining the indicator with other trading tools and price action for better results.

Buy Signal

2 bar reversal Indicator
2 bar reversal Indicator Buy Signal
  • A blue arrow on the 2 Bar Reversal Indicator indicates a buy trade opportunity.
  • Close the open buy position when the opposite signal appears, or according to your money management strategy.

Sell Signal

2 bar reversal Indicator
2 bar reversal Indicator Sell Signal
  • A red 2 Bar Reversal indicator arrow indicates a potential selling opportunity.
  • Close the open sell position when the opposite signal appears, or according to your money management strategy.

2 bar reversal Indicator Pros & Cons

Pros

  • The 2 Bar Reversal indicator helps trade trend reversals.
  • It is also suitable for trading strategies such as scalping, day/intraday, and swing trading.
  • The indicator is chart-friendly and appropriate for both beginner and seasoned forex traders.

Cons

  • Not all 2 Bar reversals are created equal.
  • It generates alot of false signals

Conclusion

When looking at a trading chart, the 2-Bar Reversal is one of the easiest price action formations to notice. The next phase for a trader is to master the art of trade management, which includes learning the optimal entry and exit points for 2 bar trades. It is recommended that traders practice trading with the 2-Bar Reversal indicator on a demo account before moving on to a real account.