Before we consider RSI trading strategies, it’s worth beginning with the small definition of the RSI.
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 a 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 pullback for the next 5-8 bars. After the retracement, the price tries to trade above the new high and manages to close above it. You need to mark this bar as a breakout one. If the movement to the upside doesn’t continue after this, this is a final stage of a 2B top pattern. At this point, you should get ready to sell. Place Stop Loss at the Recent Swing high. Take Profit should be placed 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). After it is formed, there should be a pullback to the upside during next 5-8 bars. Then the market tries to continue moving in the initial trend direction (that is down) and closes below the new low. Mark this bar as a breakout one. If the movement to the downside doesn’t continue after this and the prices close above the high of the breakout bar, this is a final stage of a 2B bottom pattern. You may buy above the high of the bar, which closed above the breakout bars’ high. Place a Stop Loss below the recent swing low. A Take Profit should be set 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 – a 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.
5– 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
When a beginner trader is looking for information how to start trading with profit, he/she usually comes across an advice to follow a trend.
Have you ever noticed that political events affect markets even more than the economic data