In the strat patterns, When a directional bar is followed by an inside bar at the end of a trend and an opposite colour, a directional bar forms, breaking the previous inside candlestick in the opposite direction, and then a 2-1-2 reversal pattern forms, this pattern will change the bullish trend into bearish and the bearish trend into bullish.
Based on the location and direction of reversal, the 2-1-2 pattern is divided into two types:
- Bullish 2-1-2 trend reversal
- Bearish 2-1-2 trend reversal
Most of the time, the 2-1-2 pattern offers very high-risk reward trades, and I also like this pattern due to the high winning ratio and risk reward.
In this lesson, I will explain the 2-1-2 reversal pattern in detail with many examples. So make sure to read the lesson without skipping any step. You can build a strong base in the strategy of strat patterns, which will later help you become a better trader.
2-1-2 Bullish trend reversal pattern
When a 2D candlestick is followed by an inside bar and a 2U candlestick forms, breaking the high of the inside candlestick, then a 2-1-2 bullish trend reversal occurs in the market. After the formation of this pattern, the market trend will turn from bearish to bullish.
Here are a few steps to follow to identify a high probability 2-1-2 bullish reversal:
- Find a bearish trend in the form of lower lows and lower highs.
- After the 2D candlestick, an inside bar will form. Note that the colour of the inside bar does not matter in this pattern.
- Next, a 2U candlestick will form, breaking the high of the inside bar.
Remember that the 2U candlestick must not break the low. It should only break the high of the inside bar, and then the 2-1-2 reversal pattern will be valid.
2-1-2 Bearish trend reversal pattern
When a 2U candlestick is followed by an inside bar, and next, a 2D candlestick will form, breaking the low of the inside bar, then a 2-1-2 bearish trend reversal occurs on the chart. This strat pattern will change the prior bullish trend into bearish.
Here are the few steps that a trader must follow to find a high probability 2-1-2 bearish reversal pattern:
- First, find a bullish trend in the form of higher highs and higher lows. You should check the highs and lows of previous candlesticks.
- After the 2U candlestick, an inside bar will form, showing a pause in the trend.
- After the inside bar, the price must break the low of the inside bar to form a 2D candlestick.
We will trade the break of the inside bar in a bearish direction.
Kindly keep in mind that the price must break the low of the previous inside candlestick. It should not break the high in case of a 2-1-2 bearish reversal; otherwise, the pattern will become invalid.
However, if the price first breaks the low and then moves up to break the high within the same candlestick, then it will still become invalid.
Examples
Here are few examples to analyze.
The psychology behind the 2-1-2 pattern
In trading, each candlestick represents a complete price wave on the lower timeframe. A trader should be able to understand the price scenarios forming on multiple timeframes by just looking at the chart.
A single bullish or bearish candlestick represents that the price is forming an impulsive wave. Next, the formation of the inside bar confirms that after an impulsive wave, the price has paused or retraced for a while. During retracement or pause, market makers decide the future direction. Then, the breakout of the inside bar confirms the future direction of market makers.
You should keep in mind that during overbought conditions, the chances of bearish trend reversal are higher. During the oversold conditions, the chances of a bullish trend reversal are higher.
The bottom line
In the strat trading, we will mostly find this 2-1-2 reversal pattern on the chart. And it’s also a very high probability pattern. We will mostly trade it on lower timeframes for entry, exit and take profit. However, I am not teaching here for entry or exit. I will teach in the upcoming lessons. I am teaching you here how to identify it accurately because this is very important. If you understand the basics of strat patterns, then it will become super easy for you to trade these patterns accurately.
So remember to backtest and analyze this pattern.
If you have any questions related to strat patterns, you can comment below 👇.