Definition: When market makes new high or new low, there is always a pullback. After the pullback the market will re-test the previous high/low. If the market fails to hold the new high/low, it signals a potential trend reversal. Trade orders are entered to sell the low of the bar trying to breakout or buy the high of the bar trying to breakdown.
This pattern is regarded as a high probability set up; there is one way to increase the probability even higher. Divergence is a great tool to see the dying momentum in the 2B pattern. The price will make new low or high to form a 2B pattern as we can see from the definition. In a successful breakout, momentum should shift to higher level but 2B is an unsuccessful breakout or you can say fake out, so failing momentum will be an early sign for us to not enter the breakout. We will now wait for the signal candle to enter the trade with confidence.
Target: The target is usually set at the ‘swing low’ prior to the new high or ‘swing high’ prior to the new low.
Stop: Protect your ‘long’ trade entry by placing a ‘stop’ below the recent low and protect the ‘short’ trade entry by placing a ‘stop’ above the recent high.