Two-Bar Reversal

Entry Logic

• Enter long on a two-bar reversal pattern, where the second bar opens below the low of the first bar and closes above the high of the first bar.
• Confirmation is a high volume on the second bar.
• Use a 4-hour timeframe for this setup.
• Entry should be above the high of the second bar.
• This setup works best in a trending market that is experiencing a deep pullback.

Exit Logic

• The profit target is a 3:1 risk-reward ratio from the entry.
• Scale out 33% at 1R, 33% at 2R, and the rest at 3R.
• Trail the remaining position with the 20-period EMA.
• Exit if price closes below the low of the second bar.
• Exit on a confirmed bearish two-bar reversal.
• Exit if the trade is not profitable within 3 days.
• Exit if the MACD shows a bearish crossover.

Stop Loss Structure

• Place a hard stop below the low of the second bar.
• A soft stop is a close below the 20-period EMA.
• Maximum dollar loss is $900 per trade.
• Maximum percent loss is 1.8% of the account.
• The structural stop is the low of the second bar.

Risk Management Framework

• Risk 1.2% of the account per trade.
• Daily loss limit is 3.6% of the account.
• Weekly loss limit is 8% of the account.
• Maximum drawdown is 22%.
• Minimum risk-reward ratio is 3:1.

Position Sizing Model

• Use a fixed fractional sizing model.
• Adjust size based on the range of the two-bar pattern.
• Use 1.5x size for A+ setups.
• Do not scale into trades.
• Scale out at predefined profit targets.

Trade Filtering

• Avoid trading this setup on low-volume stocks.
• Requires a clear two-bar reversal pattern with high volume.
• Trade only stocks that are in a strong uptrend.
• Avoid trading this setup during a bear market.
• Do not trade in choppy, sideways markets.

Context Framework

• The daily chart should show a clear uptrend.
• Price should be pulling back to a key support level.
• The setup should occur at the 61.8% Fibonacci retracement level.
• The weekly chart should show a bullish bias.

Trade Management Rules

• Move the stop to breakeven after the first profit target is hit.
• Scale out at 1R, 2R, and 3R.
• Do not add to winning trades.
• Be prepared for a strong move after the entry.

Time Rules

• This setup can occur at any time of the day.
• The entry is taken after the 4-hour bar closes.
• The trade can last for several days.

Setup Classification

• A+ setup: Large two-bar reversal, massive volume, strong trend alignment, and a close at the high.
• A setup: Clear two-bar reversal, high volume, neutral market.
• B setup: Small two-bar reversal, low volume, counter-trend.
• C setup: No clear pattern, avoid.

Market Selection Criteria

• Trade volatile stocks and cryptocurrencies.
• Minimum daily volume of 5 million shares.
• The instrument should have a high beta.

Statistical Edge Metrics

• Expected win rate is 55%.
• Average win is 3.5R.
• Average loss is 1R.
• Profit factor is 1.925.
• Expectancy per trade is 0.925R.

Failure Conditions

• The strategy fails if the high of the second bar is not breached.
• A common failure is a false breakout followed by a move to new lows.

Psychological Rules

• Have the courage to buy after a sharp sell-off.
• Do not get shaken out by the volatility.

Advanced Components

• Use a Fibonacci retracement tool to identify key support levels.
• A market sentiment indicator can help gauge fear and greed.
• Avoid trading this setup on multiple correlated instruments.
• The daily chart must confirm the uptrend.

Location

• The setup is strongest when it forms at a major support level in a strong uptrend.
• The setup is weakest in a choppy, sideways market.
• The location of the two-bar reversal in the overall trend is critical.