Price Action Reversals - Part 5 - The Two Candle Reversal - by Nigel Price

Price Action Reversals – The Two Candle Reversal – By Nigel Price

So far we have looked at preceding trends, strong reversals, and long wick reversals.

This is the last reversal pattern we are going to look at. It is the Two Candle Reversal. In many ways, this pattern is similar to the strong reversal candle we looked at previously, the only real difference being that it takes two candles for the balance of power to shift instead of one.

As usual, we should make sure that there is an existing preceding trend present before looking for a Two Candle Reversal.

Two Candle Reversal

As we can see above, in the Two Candle Reversal the buyers manage to get a bullish candle to close (blue arrow) above the open price of the previous bearish candle (red arrow).

Now, while this display of strength by the buyers might not be as impressive as the strong reversal we looked at previously, the fact remains that the balance of power between the buyers and sellers has now shifted. The buyers are in control of the market now, so we should only now be looking for opportunities to buy too.

[notify_box font_size=”15px” style=”blue”]For a Buy signal, ensure that there are two Bullish candles after a Bear candle and the close of the second Bullish candle is above the open of the Bear candle. For a Sell signal, ensure that there are two Bearish candles after a Bull candle and the close of the second Bearish candle is below the open of the Bull candle.[/notify_box]

You should now be familiar with how to identify a preceding trend together with the 3 reversal candle patterns that we use in the PAST Strategy. Take some time to put all this knowledge together and start to practice identifying them for real on your charts.

It does take some time, but with a bit of practice, it is not very difficult to become very skilled at identifying these reversals. It is a very powerful tool to have as a trader, to be able to judge whether a market is likely to reverse or not – both when you are preparing to open a new position, and when you are considering taking your profit.

If you would like something to assist you in identifying all of the elements of the Price Action reversals that we have been looking at in this series, click here for details of the PAST Strategy MT4 Anchor Chart Indicator.

PAST Strategy MT4 Anchor Chart Indicator 538x218

Good trading!