You ask us a lot of questions about bitcoin…
Trader Vic’s 2B patterns
A failed breakout is probably one of the most annoying and unfortunately frequent phenomena in trader’s life. Traders invented various methods to deal with them. In our tutorial, we will tell you about the easiest though widely used one – Trader Vic's 2B pattern (the pattern sometimes is called “spring”). It is named after its creator Victor Sperandeo who is also known in traders’ community as Trader Vic.
In his book “Principles of professional speculation” Victor Sperandeo describes Trader Vic’s 2B pattern as follows: “In an uptrend, if prices penetrate the previous high, but fail to carry through and immediately drop below the previous high, the trend is apt to reverse.” The converse scenario is true for a downtrend.
The 2B pattern can be easily found in intraday charts. For 2B pattern to occur, the prices should make a new high or new low, then there should be a pullback followed by a retest of the high/low. If the test fails, it is a signal of a correction an maybe a potential trend reversal. Now let’s look at pattern’s trading rules in case of down-/uptrends.
Trader Vic’s 2B Top Rules
Suppose there is an uptrend; the market makes a new high (20-bar high), then it attempts to make a rollback for the next 5-8 bars. After the retracement, price tries to trade above the new high and closes above new high. Here you need to mark this bar as a breakout one. There shouldn’t be any follow-through the breakout bar’s high. This is a final stage of a 2B top pattern is a Trader’s Vic pattern after which you should open a short trade. A stop-loss should be placed at the Recent Swing high – the target – at the swing-low prior to the new high.
Trader’s Vic’s 2B bottom rules
Prices try to make a new low (20-bar low). When it is formed, there should be a pullback next 5-8 bars for a good retracement. The market tries to correct in the initial trend direction (that is down) and closes below the new low. You may mark this bar as a breakdown bar. There should not be any further follow-through to close below the breakdown bar; the prices will close above the high of the breakdown bar. You may enter long above the high of the bar closed above the breakdown bars’ high. Place a stop loss bellow the recent swing low. A target point can be found near the swing-high prior to the new low.
You may use the picture below to trace the sequence of the 2B patterns’ formation.
For long setup
1 – new low
2 – sufficient retracement
3 – another bar close below Bar 1 low
4 – mark the high of Bar 2 and wait for closing of above the point 4.
45– enter long position above the high of 4
6– target previous swing highs
For short setups
1 – Find a new high
2 – wait for sufficient rollback
3 – another bar should close above the high of Bar 1
4 – mark low of Bar 3 and wait for closing below point 4
5 – enter short below the low of 4
6 – target previous swing lows