One of my favourite candle patterns when trading forex is a pattern that occurs and recurs on all time frames, and it is the two bar reversal, which when complete can deliver a correction of the trend, herald the start of a breakaway from congestion, and even a full blown reversal. This pattern can also be given added impetus if it appears ahead of a significant item of fundamental news, particularly if the release reinforces the pattern’s technical set up on the chart.
Put simply, a two bar reversal occurs when we have two similar size candles, one up and one down (or vice versa), and when overlaid create either a classic shooting star or hammer candle.
And we have had two great examples on the eur/aud and gbp/aud following the RBA statement, the Retail Sales number, and Current Account data.
As we can see both charts are structurally very similar, with the two bar reversal pattern clearly in evidence at the end of last week’s trading session, and note the increase in volume under the down candle on both, followed by the weak attempt to rally, particularly on the gbp/aud.
Following the failure of yesterday’s rally today’s sharp move lower has taken these pairs to test minor support, which if breached will open the way to a deeper move lower for both.
For eur/aud a failure to hold the 1.55 price point would take the pair quickly through a low volume node and down to more significant support at 1.5458. For gbp/aud the key level is in the 1.7490 region, which marks the volume point of control on the 4 hour chart, and gives the pair some respite from the current bearish momentum.
By Anna Coulling
I appreciate the clear article. I have been getting familiar with your trading style as I finish your book on VPA Analysis (extremely enlightening). I noticed the indicators on the screen are the ones you market. So you really use them. Nice to see something in practice instead of theory.
Hi Allen – many thanks for your kind comments and much appreciated and I’m so pleased you enjoyed the book, and I hope you enjoy using the indicators too. I am publishing two more books in the near future, both with detailed worked examples in VPA, (one for forex with over 100 worked examples, and one for stocks with over 200 worked examples) and a third to follow applying the same principles to Cryptocurrencies, so I hope you will enjoy reading these too. They will all be on Amazon in both Kindle and Paperback format. So thanks again and wishing you every success in your trading – regards Anna