Trading reversals using this powerful two bar candle pattern

Trading reversals using this powerful two-bar candle pattern

The two-bar reversal candle pattern is one of the most important to understand, as it often signals the start of a reversal, and it’s not hard to understand why, since if you overlay one on the other, then this becomes a hammer or shooting star candle. And of course if you use volume price analysis, this will validate the signal further.

00:01

Webinar introduction and disclaimer

00:01

The webinar begins with a brief introduction and some technical preparations as the host sets up charts and tabs. The host emphasizes the importance of the trading disclaimer visible on screen, warning that trading is risky and advising viewers not to use money they cannot afford to lose. The host also references a recent tragic incident involving a young man who misinterpreted trading information while using the Robinhood app, highlighting the dangers of misunderstanding trading risks.

01:08

Trading risks and personal story

01:08

The speaker shares a personal story about someone who was perceived to have lost a huge amount of money, possibly 700,000, but had actually committed suicide. This experience deeply affected the speaker’s family, highlighting the serious emotional risks involved in trading. The speaker urges caution, emphasizing that while trading can be enjoyable and profitable, it is crucial to fully understand the risks and not to use money one cannot afford to lose.

01:48

Volume and price action overview

01:48

The session emphasizes the importance of understanding your profit and loss (P&L) and introduces the topic of analyzing volume alongside price action. Volume is used to confirm the authenticity of price movements on charts and is also examined in terms of volume support.

02:23

Volume point of control concept

02:23

The speaker explains the concept of the volume point of control, an indicator that builds on the chart’s y-axis by identifying low and high volume nodes, which act as support and resistance levels. Low volume areas are particularly significant because prices tend to move quickly through these zones. The analysis considers both price (two dimensions) and time (three dimensions) to enhance understanding of support and resistance in volume price analysis. The speaker also mentions a related book available on Amazon with over 700 mostly five-star reviews.

03:36

Book reviews and market patterns

03:36

The speaker expresses excitement about discussing a book that has significantly impacted traders and investors. The focus will be on analyzing multiple time frames and chart patterns, especially the two-bar reversal. Examples will demonstrate how multiple time frames can validate trading signals. The approach integrates volume, support and resistance levels, chart patterns, and timing to comprehensively apply Volume Price Analysis (VPA), highlighting the elegance of this method before moving on to chart analysis.

04:36

Current market sentiment update

04:36

The market is currently showing slight declines with the Dow and Nasdaq down marginally. Despite this, key levels for these indices—eleven thousand for the Nasdaq and twenty-seven thousand for the Dow Jones—are holding, resulting in very narrow trading ranges. The session has exhibited interesting price action and volume combinations, indicating cautious market sentiment as investors try to stay positive amid these critical thresholds.

06:16

Volume Price Analysis (VPA) principles are applicable across various markets including commodities like silver, gold, and oil. The same price patterns and signals recur regardless of the ticker symbol, allowing traders to interpret charts consistently across different instruments. This reinforces the universality of market behavior and technical analysis techniques.

06:50

The current market mood is likened to the calm before a storm, similar to the ‘phony war’ period in the UK just before World War II. Despite favorable conditions such as good weather and a decline in the virus situation, there is an underlying sense of tension and anticipation, suggesting that significant market movements or events may be forthcoming.

07:19

Economic impact on industries

07:19

The speaker notes a temporary lull in market turmoil but warns that conditions are still unstable and anticipates significant market upheaval around the U.S. presidential election. They reference a newsletter highlighting severe economic damage to sectors like the cruise industry, using Carnival Cruise Line as an example whose share price has drastically fallen from nearly 4,000 pounds to under 1,000 pounds. Cruise ships remain idle and are burning through $600 million monthly just to stay afloat.

08:28

The cruise and leisure industries are severely impacted, with many ships anchored offshore and companies incurring massive monthly losses. The speaker mentions that 270 British Airways pilots are being made redundant, illustrating the leisure industry’s devastation. The high liquidity in the economy is attributed to efforts to maintain employment, but this situation is unsustainable. A quoted market commentary suggests the market aims to inflict maximum pain on participants, though those who understand market analysis techniques can avoid severe losses.

10:09

The session briefly pauses due to technical issues with chart displays. The speaker invites viewers to submit questions in the chat, promising to address both short and longer inquiries. The presenter prepares to resume analysis, specifically focusing on currency pairs such as the pound and the Australian dollar.

10:45

Two bar reversal chart pattern explained

10:45

The speaker introduces chart patterns focusing on volume point of control, low and high volume nodes, using commodity and other charts as examples. The main pattern discussed is the two-bar reversal, demonstrated on the Pound/Aussie 30-minute chart. Support levels are highlighted, particularly volume support around 77.1. The importance of multiple time frames in trading decisions is emphasized, with a preference for the 30-minute and 10-minute charts.

11:52

The speaker explains the selection of time frames for trading, noting the trial-and-error approach and available time for screen monitoring. The 30-minute chart is primarily used for trade signals, with the powerful two-bar reversal pattern identified as a bullish engulfing candle at the bottom of a trend. This pattern occurs near volume-based support indicated by the volume point of control.

12:58

Details of the two-bar reversal pattern are examined, showing how volume behavior supports the signal. A decrease in volume followed by a bullish engulfing candle near the volume support line indicates a potential price pause and upward movement. Volume rises with the subsequent price increase, confirming the validity of the signal on the 30-minute chart.

14:28

The speaker attempts to show the same two-bar reversal pattern on a faster 10-minute chart, identifying a hammer candle as the signal. Emphasis is placed on validating signals across multiple time frames to increase reliability. The 30-minute chart acts as a slower time frame confirmation, reinforcing the trade decision.

15:44

Traders are advised to consider their risk tolerance when acting on signals. Aggressive traders might enter on the 10-minute chart hammer candle, while conservative traders wait for the full two-bar reversal confirmation on the 30-minute chart. The speaker notes that the pattern can sometimes pull back significantly after the initial move.

16:43

A second example of the two-bar reversal on the Pound/Aussie is discussed, again showing the hammer candle on the 10-minute chart near the 77.60 level. For traders using even faster time frames, the speaker suggests the 3-minute or 5-minute charts and introduces Renko charts as useful tools for identifying trends, consolidations, and turning points without candle wicks.

18:35

Renko charts combined with time charts help traders identify strong reversal signals like hammer candles in consolidations. The Pound/Aussie had particularly clear patterns recently, which may vary by instrument. The speaker encourages focusing on one or two candle patterns initially to build familiarity, using volume and multiple time frame validation to understand their behavior.

19:41

The speaker plans to cover bearish reversal patterns like the shooting star in future sessions, applying similar analysis principles in reverse. Viewers are invited to ask questions in the chat box.

By Anna Coulling – creator of volume price analysis

By Anna Coulling – creator of volume price analysis