In my group, we call these tubas, as per Mental Midget. Two bars was introduced to me in myriad books I’ve read but never clicked with significance till my chart analyst mentor AskBucky showed me what they are. 2 Bars are best viewed by using bar charts. They are commonly described as railroad ties. In Nison’s terms, the 2 bar is generally a bullish/bearish engulfing pattern or a candle combo like a piercing or a dark cloud cover. Regardless, the benefit is understanding how it is formed.
Essentially 2 bar is a reversal signal. Along with 3 bar reversal. The mistake is that people generally think that they happen too fast to be able to play it. The other issue with 2 bar reversals is that it needs confirmation. A good 2 bar reversal cannot have its 2 bar’ness violated by the adjacent candles. Why? Because it loses its distinctiveness as a 2 bar.
Here is a few examples of 2 bars in Goldman. What is more meaningful is how 2 bars are formed. AskBucky taught me to look at how the 2 bar is represented in other time frames. This was a great tip. Because it didn’t allow you to stand idly by trying to wait for confirmation as the 2 bar forms. While you are waiting for it to form and get confirmation, you could lose the bulk of the move.
For instance lets take a look at the weekly 2 bar of 10/5-10/12. These 2 candles produced a 2 bar reversal signal. When we look at this from a daily perspective. How was this 2 bar formed?
Here in the daily in the yellow, I’ve bracketed the days that produced the 2 bar of the weekly. The oval is where this 2 bar was defined. But what is more significant is the overall chart pattern here in the daily that helped define what the 2 bar reversal will actually do. As you should know, the 2 bar signals a reversal from bullish to bearish or from bearish to bullish. After this pattern, you should have a continuation to the price action to create the full effect of the reversal.
So what we have here is a type of HnS pattern. As you can see in your momentum reading, you have had a build up of bearish momo since back in late July. By understanding the lower time frame action, you can determine how it will form a 2 bar and if the 2 bar will be confirmed.
Hope this helps you JB.