2000issue C111-5
Two-bar reversal construction
One- and two-bar reversals are built as short-horizon exhaustion signals. Construction requires a prior trend, a quality-graded engulfing range and close, and a next bar that confirms or fails the breakout.
- One- or two-bar reversals complete quickly and are meant as short-horizon exhaustion signals, not multi-week structures.
- A top is treated as more effective after a meaningful rally, and a bottom after a sharp prior decline, with the two bars standing out by exceptionally wide ranges.
- Outside-bar quality rises when the close is sharply against the prior move or when the bar engulfs three or four prior ranges rather than barely covering one.
- The next bar must hold or fail beyond the reversal bar extreme before the construction becomes a tradable hypothesis.
Short-horizon exhaustion signals
One- or two-bar reversal patterns complete quickly and are intended as short-horizon exhaustion signals rather than multi-week structures. Candlestick patterns, in this construction, are one- or two-bar candlestick structures that mark exhaustion after a prior move and imply only a short-horizon reversal.
Require a prior trend
These formations are more effective when a top follows a meaningful rally and a bottom follows a sharp prior decline. A two-bar reversal is described as needing a persistent preceding trend, with the two bars themselves standing out by exceptionally wide ranges.
Score engulfing range and close
An outside bar fully encompasses the prior bar's range and is presented as a strong exhaustion signal after either an uptrend or a downtrend. Outside-bar quality rises when the close is sharply against the prior move or when the bar engulfs three or four prior ranges rather than barely covering one.
Wide two-bar peaks and troughs
When the structure is a two-bar island or inside-bar cluster after a persistent swing, the archive treats it as a double top or bottom only if those bars stand out by unusually wide range at the peak or trough.
Construct the key reversal bar
A key reversal bar appears after a prolonged, often accelerating rally or reaction, opens with the prevailing trend, and then reverses. In the classic key-reversal construction, price attempts to continue the old trend, then buyers force a close above the previous bar high as selling collapses. A key reversal that opens toward the old extreme and closes the other way is treated as stronger when volume is extremely high, read as exhaustion of the prior side.
Wait for the next-bar breakout
A breakout is next-bar confirmation when price holds or fails beyond the reversal bar extreme, turning the pattern into a tradable hypothesis. Editorial reading: treat the following bar as the step that confirms or fails the construction, not as a promise of a larger swing.
Horizon follows the chart scale
On daily bars the implied reversal often lasts at least three to five days. On 10-minute bars the same construction is described as lasting about one to two hours.
All readings on this track · 32 readings
- 1988Reaction length as a trend integrity test
- 1991Sold-out double bottoms as a three-gate inventory test
- 1991A breadth classifier for V-bottoms and W-bottoms
- 1991Precomputed price-ratio clusters and double-top tests
- 1992Bond turning points as a regime check on equity double tops and breakouts
- 1992Commodity-bond ratio as an equity regime overlay
- 1992Gold lead confirmation for commodity-index turns
- 1994Constructing the thousand-line advance-decline indicator
- 1995Evaluating zero-line patterns on a breadth-price oscillator
- 1996Constructing double tops from a resistance retest to a trough break
- 1996Four-stage double-bottom construction
- 1998Double-bottom confirmation and stop placement
- 2000Two-bar reversal construction
- 2001Constructing double tops from failed resistance retests
- 2002Eve-Eve double bottoms: width, confirmation, and overhead resistance
- 2002Constructing Eve-and-Eve and classic double bottoms
- 2003Eve-Adam double bottoms as a two-step classroom test
- 2003Shape contrast then breakout confirmation in Adam and Eve double bottoms
- 2003Reading cyclical bottoms inside secular bear regimes
- 2004A case study of the shark-attack Fibonacci retracement
- 2004Confirming index turns with envelopes, divergence, and breadth
- 2005A five-wave euro/dollar case and the support that still had to fail
- 2007Constructing commodity seasonal indexes for regime context
- 2009Constructing rounded and double-top short setups
- 2010Hourly pattern entries, exits, and abstention as one playbook
- 2016Ugly double bottom after a yearly low
- 2016An unconfirmed stock double bottom next to a confirmed index
- 2016Constructing a range-midpoint moving average
- 2017Evaluating whole-dollar delays on pattern breakouts
- 2018Volume-confirmed bottoms and breakouts with moving averages
- 2018Evaluating double bottoms with a locked stochastic confirmation
- 2019Forex pairs as relative value: yield spreads, support, and a double bottom