The Ultimate Forex Edge – 2 Bar Reversal Play
THE ULTIMATE
FOREX EDGE
2 Bar Reversal Play
Brought to you by
Page 1
The Ultimate Forex Edge – 2 Bar Reversal Play
DISCLAIMER
While all attempts have been made to verify information provided in this publication,
neither the author nor the Publisher assumes any responsibility for errors, omissions or
contrary interpretations of the subject matter herein. The publication is not intended for
use as a source of legal or financial advice. The Publisher wants to stress that the
information contained herein may be subject to varying state and/or local laws or
regulations. All users are advised to retain competent counsel to determine what state
and/or local laws or regulations may apply to the user’s particular business or personal
circumstances.
The purchaser or reader of this publication assumes responsibility for the use of these
materials and information. Adherence of all applicable laws and regulations, both
federal, state and local, governing investing in financial markets, professional licensing,
business practices, advertising and all other aspects of doing business in any jurisdiction
is the sole responsibility or liability whatsoever on behalf of any purchaser or reader of
these materials. We expressly do not guarantee any result you may or may not get as a
result of following our recommendations. You must test everything for yourself. Any
perceived slight of specific people or organizations is unintentional.
Before making an investment or trading decision based on the advice or material
hereon, the recipient should consider carefully the appropriateness of the advice in light
of his or her financial circumstances. This material is for informational & educational
purposes only. It is not intended as an offer or solicitation for the purchase or sale of any
financial instrument or as an official confirmation of any transaction. All market prices,
data and other information are not warranted as to completeness or accuracy and are
subject to change without notice.
Page 2
The Ultimate Forex Edge – 2 Bar Reversal Play
TABLE OF CONTENTS
INTRODUCTION....................................................................................................4
PRICE FORMATIONS ............................................................................................5
2 Bar Reversal Play Formation ..............................................................................6
Pivot Formation ....................................................................................................8
TRADE SETUP ..................................................................................................... 12
TRADE ENTRY .................................................................................................... 13
Long Setup ......................................................................................................... 13
Long Entry: ........................................................................................................ 13
Short Setup ......................................................................................................... 14
Short Entry: ........................................................................................................ 14
Long Stop Loss: ................................................................................................. 15
Short Stop Loss: ................................................................................................. 15
TRADE MANAGEMENT ..................................................................................... 16
Long Trade Management: ................................................................................... 16
Short Trade Management: ................................................................................... 17
TRADE OVERVIEW............................................................................................. 18
Long Trade Overview: ........................................................................................ 18
Short Trade Overview:........................................................................................ 19
TRADING RULES ................................................................................................ 20
Change of Bar .................................................................................................... 20
Valid Break of Entry Price .................................................................................. 21
Trend Consideration When Setup Occurs ............................................................ 23
TRADE EXAMPLES ............................................................................................. 27
Long Trade Examples ......................................................................................... 27
Short Trade Examples ......................................................................................... 32
FINAL THOUGHTS .............................................................................................. 36
Page 3
The Ultimate Forex Edge – 2 Bar Reversal Play
INTRODUCTION
I’ve always been looking out for new strategies that I can add to my trading arsenal,
but nowadays I never really see anything that I haven’t come across before. Now I
normally create my own strategies by combining my experience and knowledge of
the markets, and can now “tweak” any strategies I come across.
This strategy here is something that is very underrated. It is a very simple strategy,
but probably one of the most powerful.
What I love about this strategy is that it yields great risk reward, and is one of those
strategies that is so simple that it normally goes “under the radar” when people are
trying to discover new trading strategies.
I have noticed that not many forex traders talk about this strategy, and I’m not sure
why this is. Maybe because it is used more in other markets, but I have found it to
work extremely well in forex.
I will cover everything you need to know including the setup, entry, stop placement
and trade management. This strategy will be a great addition to your trading plan,
and can be a very powerful system when used as shown in this manual.
Page 4
The Ultimate Forex Edge – 2 Bar Reversal Play
PRICE FORMATIONS
For this strategy, we will be looking at the following price formation:

2 bar reversal play formation

Pivot formation
The 2 bar play formation will be the actual price formation that will trigger entry, and
the pivot formation is what we will use in our trade management. I will cover both
formations now, and will then explain how we will use them in the later chapters of this
manual.
Page 5
The Ultimate Forex Edge – 2 Bar Reversal Play
2 Bar Reversal Play Formation
This is a very simple price formation which obviously involves 2 price bars. It simply
consists of 2 down bars or 2 up bars.
With the down bars (red bars), we want the close of the second bar to be LOWER than
the LOW of the first bar.
With the up bars (green bars), we want the close of the second bar to be HIGHER than
the HIGH of the first bar.
Example of 2 Bar Play Formation (2 Up Bars)
Example of 2 Bar Play Formation (2 Down Bars)
Page 6
The Ultimate Forex Edge – 2 Bar Reversal Play
Wrong Formations
Here are examples and reasons why these price formations are NOT 2 Bar play
formations:
We will be using the 2 Bar Play formation for generating entry signals for this
strategy (covered in next chapter)
Page 7
The Ultimate Forex Edge – 2 Bar Reversal Play
Pivot Formation
A pivot is simply when the “high” or “low” of a bar “sticks out” from other bars around
it.
If the pivot is a “pivot high” (highs of other bars around it are lower), then we know
there is supply around this pivot.
If the pivot is a “pivot low” (lows of other bars around it are higher), then we know there
is demand around this pivot.
Page 8
The Ultimate Forex Edge – 2 Bar Reversal Play
The technical definition of a pivot is:
For a pivot high:
A high of a bar is a pivot high if the bar to the left and right of it have a lower high than
the high of the pivot high.
Page 9
The Ultimate Forex Edge – 2 Bar Reversal Play
For a pivot low:
A low of a bar is a pivot low if the bar to the left and right of it have a higher low than
the low of the pivot low.
Page
10
The Ultimate Forex Edge – 2 Bar Reversal Play
The more bars on either side with a higher low (for pivot lows) or lower highs (for pivot
highs), the stronger the demand or supply is.
We will be using pivot formations for the trade management of this strategy (covered
later)
Page
11
The Ultimate Forex Edge – 2 Bar Reversal Play
TRADE SETUP
Trading Tools

Candle Stick Charting

Daily Timeframe

10, 20, 50, & 200 Period Exponential Moving Averages

2 Bar Play formation
The Moving averages are there just to give you sentiment of which direction the trend is.
Of course you can judge this by just price itself, but there are times where prices can be
trending up but price could still be below some of the longer term moving averages, so
putting the moving averages on the chart can be helpful so you can always see the
general picture of chart.
Page
12
The Ultimate Forex Edge – 2 Bar Reversal Play
TRADE ENTRY
Long Setup

2 Bar Play Formation (Down Bars)
Long Entry:

2nd Bar’s high broken

Enter on break of high.
Page
13
The Ultimate Forex Edge – 2 Bar Reversal Play
Short Setup

2 Bar Play Formation (Up Bars)
Short Entry:

2nd Bar’s low broken

Enter on break of low.
Page
14
The Ultimate Forex Edge – 2 Bar Reversal Play
TRADE STOP PLACEMENT
Long Stop Loss:

Below low of 2nd bar in 2 bar play formation. (allow for broker spread)
Short Stop Loss:

Above high of 2nd bar in 2 bar play formation. (allow for broker spread)
Page
15
The Ultimate Forex Edge – 2 Bar Reversal Play
TRADE MANAGEMENT
Long Trade Management:

Move stop to Break even (entry price) when your profit in the trade equals the
risk you put on the trade (when you are in profit the same number of pips you
risked on the trade)

½ position taken off at previous pivot high. If this rule cannot be used (maybe
previous pivot high too far or too close), then follow exit as per the 2 nd half exit:

½ remaining position to be trailed by placing a trailing stop under each pivot low
formed.
Page
16
The Ultimate Forex Edge – 2 Bar Reversal Play
Short Trade Management:

Move stop to Break even (entry price) when your profit in the trade equals the
risk you put on the trade (when you are in profit the same number of pips you
risked on the trade)

½ position taken off at previous pivot low. If this rule cannot be used (maybe
previous pivot low too far or too close), then follow exit as per the 2 nd half exit:

½ remaining position to be trailed by placing a trailing stop above each pivot high
formed.
Page
17
The Ultimate Forex Edge – 2 Bar Reversal Play
TRADE OVERVIEW
Long Trade Overview:
Long Setup

2 Bar Play Formation (Down Bars)
Long Entry:

2nd Bar’s high broken

Enter on break of high.
LONG STOP LOSS:

Below low of 2nd bar in 2 bar play formation. (allow for broker spread)
LONG TRADE MANGEMENT:

Move stop to Break even (entry price) when your profit in the trade equals the
risk you put on the trade (when you are in profit the same number of pips you
risked on the trade)

½ position taken off at previous pivot high. If this rule cannot be used (maybe
previous pivot high too far or too close), then follow exit as per the 2 nd half exit:

½ remaining position to be trailed by placing a trailing stop under each pivot low
formed.
Page
18
The Ultimate Forex Edge – 2 Bar Reversal Play
Short Trade Overview:
Short Setup

2 Bar Play Formation (Up Bars)
Short Entry:

2nd Bar’s low broken

Enter on break of low.
Short Stop Loss:

Above high of 2nd bar in 2 bar play formation. (allow for broker spread)
Short Trade Management:

Move stop to Break even (entry price) when your profit in the trade equals the
risk you put on the trade (when you are in profit the same number of pips you
risked on the trade)

½ position taken off at previous pivot low. If this rule cannot be used (maybe
previous pivot low too far or too close), then follow exit as per the 2nd half exit:

½ remaining position to be trailed by placing a trailing stop above each pivot high
formed.
Page
19
The Ultimate Forex Edge – 2 Bar Reversal Play
TRADING RULES
I will now cover some very important rules and scenarios that need to be addressed for
this strategy:
Change of Bar
The first thing we need to address is a “change of bar” that can occur after the setup.
This is simply a bar which has not broken the entry point (otherwise you would be in the
trade), but has instead formed the opposite bar to the 2 bar setup (if going short then a
down bar has formed after 2 up bars, or if going long an up bar has formed after 2 down
bars)
What you can do is trade it the next day as this Is still a valid setup (so enter on break of
the high/low of this “change of bar”)
Page
20
The Ultimate Forex Edge – 2 Bar Reversal Play
Valid Break of Entry Price
If the next bar formed after the setup does not break the entry point the next day, then
this setup is considered void unless this bar is a “Change of bar” as explained above.
e.g.1
e.g.2
Page
21
The Ultimate Forex Edge – 2 Bar Reversal Play
Not Valid Play
Page
22
The Ultimate Forex Edge – 2 Bar Reversal Play
Trend Consideration When Setup Occurs
It is very important that we understand when a setup is low risk or when it is high risk.
Obviously it is best to just not trade the higher risk trades, but that doesn’t mean that
you cannot make money from them. I recommend staying away from the higher risk
trades and just sticking to the low risk ones.
So what determines what is high risk or low risk? …….The Trend!
Now generally we will be trading with the trend. I say “generally” because there will be
times where we may trade against the general trend but with the smaller term trend.
It is advisable to initially always trade with the trend and then as you gain experience,
you may want to take some of the higher probability counter trend trades (even though
I say counter trend here, these trades will still be going with the shorter term trend)
Long Trades
The easiest trades to take here are the trades that are in an up trending chart with all
the ma’s nicely going up underneath price action. These long trade formations are no
brainers.
Page
23
The Ultimate Forex Edge – 2 Bar Reversal Play
Then we may get trades that occur in the following scenario: We may get a 2 bar long
play when price has failed to make a higher high but is still in a general up trend. The
fact that price could not create a higher high is an indication of a shift of power from the
buyers to the sellers. These trades should be left as there could be a high probability of
getting stopped out.
We want to avoid trading long positions where the previous pivot high before the setup
is not higher than other recent pivot highs before it.
To take this further and ensure we are trading the highest probability trades, we can
avoid any long positions that happen when price is below the 50 EMA.
If you would like to be more aggressive, then you can take trades in the long direction
where previous low pivots are not being broken and the previous pivot before the setup
is a recent high pivot.
Page
24
The Ultimate Forex Edge – 2 Bar Reversal Play
Short Trades
The easiest trades to take here are the trades that are in a down trending chart with all
the ma’s nicely going down above price action. These short trade formations are no
brainers.
Then we may get trades that occur in the following scenario: We may get a 2 bar short
play when price has failed to make a lower low but is still in a general down trend. The
fact that price could not create a lower low is an indication of a shift of power from the
sellers to the buyers. These trades should be left as there could be a high probability of
getting stopped out.
Page
25
The Ultimate Forex Edge – 2 Bar Reversal Play
We want to avoid trading short positions where the previous pivot low before the setup
is not lower than other recent pivot lows before it.
To take this further and ensure we are trading the highest probability trades, we can
avoid any short positions that happen when price is above the 50 EMA.
If you would like to be more aggressive, then you can take trades in the short direction
where previous high pivots are not being broken and the previous pivot before the setup
is a recent low pivot.
Page
26
The Ultimate Forex Edge – 2 Bar Reversal Play
TRADE EXAMPLES
Long Trade Examples
Trade 1:
We see a 2 bar play (long) formation in an uptrend. (Entry tomorrow is blue line)
Entry point is not broken the next day, but a change of bar forms the next day, so this
play is still valid. We wait for the next day to break the entry point. (blue line)
Page
27
The Ultimate Forex Edge – 2 Bar Reversal Play
Entry point is broken the next day and we’re in! The stop is placed as shown (red line)
The breakeven point is where the profit in the trade equals the risk put in the trade. This
is as indicated. As we can see, this is very close to the last high, therefore even though
generally we would be taking off ½ our position at the last high, in this case (seeing as it
is so close to our breakeven point), we will simply trail the whole position as we would
the second half (as if we had taken ½ off at the last high).
Page
28
The Ultimate Forex Edge – 2 Bar Reversal Play
The trade is managed as shown. The red lines show how the stop is moved as the trade
unfolds.
Page
29
The Ultimate Forex Edge – 2 Bar Reversal Play
Trade 2
We see a 2 bar play (long) formation in an uptrend. (Entry tomorrow is blue line)
Entry point is broken the next day and we’re in! The stop is placed as shown (red line)
Page
30
The Ultimate Forex Edge – 2 Bar Reversal Play
The breakeven point is where the profit in the trade equals the risk put in the trade. This
is as indicated. As we can see, the last high was close to the entry point, so there is no
point looking to take half the position of here, therefore even though generally we
would be taking off ½ our position at the last high, in this case (seeing as it is so close to
our entry point), we will simply trail the whole position as we would the second half (as
if we had taken ½ off at the last high). The trade is managed as shown. The red lines
show how the stop is moved as the trade unfolds.
Page
31
The Ultimate Forex Edge – 2 Bar Reversal Play
Short Trade Examples
Trade 1:
We see a 2 bar play (long) formation in an uptrend. (Entry tomorrow is blue line)
Entry point is not broken the next day, but a change of bar forms the next day, so this
play is still valid. We wait for the next day to break the entry point. (blue line)
Page
32
The Ultimate Forex Edge – 2 Bar Reversal Play
Entry point is broken the next day and we’re in! The stop is placed as shown. The
breakeven point is where the profit in the trade equals the risk put in the trade. This is as
indicated. As we can see, this is very close to the last low, therefore even though
generally we would be taking off ½ our position at the last low, in this case (seeing as it is
so close to our breakeven point), we will simply trail the whole position as we would the
second half (as if we had taken ½ off at the last low). The trade is managed as shown.
The red lines show how the stop is moved as the trade unfolds.
Page
33
The Ultimate Forex Edge – 2 Bar Reversal Play
Trade 2
We see a 2 bar play (long) formation in an uptrend. (Entry tomorrow is blue line)
Entry point is broken the next day and we’re in! The stop is placed as shown (red line)
Page
34
The Ultimate Forex Edge – 2 Bar Reversal Play
The breakeven point is where the profit in the trade equals the risk put in the trade. This
is as indicated. As we can see, the last low was close to the breakeven point, so there is
no point looking to take half the position of here, therefore even though generally we
would be taking off ½ our position at the last low, in this case (seeing as it is so close to
our breakeven point), we will simply trail the whole position as we would the second
half (as if we had taken ½ off at the last low). The trade is managed as shown. The red
lines show how the stop is moved as the trade unfolds.
Page
35
The Ultimate Forex Edge – 2 Bar Reversal Play
FINAL THOUGHTS
The 2 bar play takes advantage of the minor pullbacks in a trend and uses this pullback
to generate a low risk buy or sell signal so you can trade high risk reward, high
probability trades.
We have also talked about how you can trade this strategy aggressively or
conservatively depending on your trading objectives.
In developing this system, I wanted to create a strategy that was very simple to follow
yet gave high risk reward results, which has definitely been achieved here. I’m confident
that if you take the time to trade this system, then you will be able to generate great
profit from this strategy.
To Your Trading Success,
Kumar Kaushal
Page
36