STRAT Reversals are combos that signal a possible reversal of the trend. There are many reversal combos, some of which are easier to scan for than others because they are more distinct.

Reversal combos may even start a continuation combo because of the fact that they signal a possible reversal of the trend.

The STRAT method, developed by Rob Smith @RobInTheBlack on Twitter, is a price action-based charting strategy that analyzes individual candles and how they relate to each other, how they conform to levels of support and resistance, and how they can be traded with other time frames.

This method aims to remove emotion as much as possible by being objective, which means eliminating market noise and using facts to trade.

Also Read – What Is the STRAT Method?

2-2 Reversal

The 2-2 Reversal has two combos that this article is going to cover: the Bullish 2-2 Reversal and the Bearish 2-2 Reversal.

The Bullish 2-2 Reversal is when there is a 2-down candle, which is the red candle in this diagram, and then there is a 2-up candle, which signals a reversal of the trend.

2-up and 2-down just refer to the direction of the candle. So, if the bar took out the previous candle’s low, it may be referred to as a 2-down and if the bar took out the previous candle’s high, it may be referred to as a 2-up.

With the Bullish 2-2 Reversal, an entry may be placed 1 cent above the high of the 2-down bar, and then the first target may be placed at the high of the previous bar.

Also, the color of the 2-down bar isn’t usually a specific pattern identifier, meaning that a bullish color would only add confidence to the success of a reversal. Here’s a chart example:

In this chart, a Bullish 2-2 Reversal can be identified. The target price may be the high of the 2 bar before the middle 2 bar (almost doji), and the entry price may be one cent above the high of the middle 2, almost doji, bar.

This chart shows a reversal in the trend following a Bullish 2-2 Reversal combo.

The Bearish 2-2 Reversal is basically the opposite of the Bullish 2-2 Reversal, where the combo has a 2-up bar, then a 2-down bar.

An entry may be placed at 1 cent below the bottom of the 2-up bar, and the first target may be at the bottom of the previous bar. This would be a shorting opportunity.

In this chart a bearish reversal is shown where the 2 up bar is the highest point of the chart. A target price may be set at the low of the green, 2 bar, and an entry price may be set one cent below the low of the peak, 2 bar.

The following trend of the reversal is bearish.

2-1-2 Reversal

The 2-1-2 Reversal also has two types, bullish and bearish. They are simple to scan for because there is an inside bar in the combo. 

The Bullish 2-1-2 Reversal combo begins with a 2 candlestick. The second candlestick is going to be an inside bar, which is a 1 candlestick.

Then, the live candlestick is a 2-up. The colors really just add confidence to the success of a reversal.

The entry price maybe 1 cent above the high of the inside bar, and the first target price may be the high of the first 2 bar. Here’s a chart example:

This chart shows a Bullish 2-1-2 Reversal. A target price may be placed at the top of the first 2 bar, and an entry price may be placed at one cent above the top of the first 1 bar.

The Bearish 2-1-2 Reversal combo begins with a 2 candlestick. The second candlestick is going to be an inside bar, which is a 1 candlestick.

Then, the live candlestick is a 2-down. The entry price maybe 1 cent below the low of the inside bar and the first target price may be the low of the first 2 bar.

In this chart, there is a Bearish 2-1-2 Reversal which results in a further downtrend. Yes, the last candle shown here is green, but it is a 2 down so it is still in a downwards direction.

A target price for the combo may be set at the low of the first candle shown in the chart, and an entry price may be set at one cent below the low of the 1 bar in the chart.

3-1-2 Reversal

The 3-1-2 Reversal is like the 2-1-2, except the first candle is a 3. There are two types again, bullish and bearish.

The Bullish 3-1-2 Reversal starts with a 3 bar which is likely red, then a 1 inside bar forms and the live bar is a 2-up. The entry price maybe placed 1 cent above the inside bar, and the first target price may be placed at the top of the 3 bar.

In this chart, there is a Bullish 3-1-2 Reversal combo. A target price may be placed at the high of the 3 bar, and an entry price may be placed 1 cent above the high of the 1 bar.

The Bearish 3-1-2 Reversal starts with a 3 bar which is likely green, then a 1 inside bar forms and the live bar is a 2-down. The entry maybe placed 1 cent below the inside bar, and the first target price may be placed at the bottom of the 3 bar.

A target price in this chart may be placed at the low of the 3 candle. An entry price may be placed at one cent below the low of the 1 candle.

3-2-2 Reversal

The 3-2-2 Reversal is like a 2-2 reversal except the first candle is a 3. There are two types, bullish and bearish.

The Bullish 3-2-2 Reversal begins with a 3 bar, and then a 2-down is formed. The live bar is another 2 which is a 2-up. The entry price may be at 1 cent above the 2-down, and the first target price may be the top of the 3 bar.

This chart shows a Bullish 3-2-2 Reversal where a target price may be placed at the high of the 3 candle, and an entry price may be placed at one cent above the high of the red, 2 candle.

The Bearish 3-2-2 Reversal begins with a 3 bar, then a 2-up. The live bar is another 2 which is a 2-down. The entry price may be at 1 cent below the 2-up, and the target price may be placed at the bottom of the 3 bar.

1-2-2 Rev Strat

The Rev Strat that this article is going to cover is the 1-2-2 Rev Strat. Don’t get caught up with the fancy Rev Strat name either, it’s really just a description.

There are two types, bullish and bearish.

The Bullish 1-2-2 Rev Strat starts with a 1 bar which means that there is a previous candle that it is within the range of. It could be a 2, for example.

There is a have the 1 bar, then a 2-down bar. The next candle is the live candle which would be a 2-up.

An entry may be placed 1 cent above the 2-down candle, and a target may be at the high of the candle before the 1 bar.

The Bearish 1-2-2 Rev Strat begins with a 1 bar, which again, means that there is a previous candle that it is within the range of. Then the next candle is a 2-up.

After that, the live candle would be a 2-down.

The entry price may be placed 1 cent below the 2-up. The first target price may be at the bottom of the 1 candle and the second target price may be at the bottom of the candle before the 1 bar.

Or, the first target price may be placed at the bottom of the candle before the 1 bar.

Examples

Here is a quick Bullish 2-2 Reversal example:

In (Entry) @ 33.49

Out (Target) @ 35.98

This was a potential swing trade made over 5 days (Including weekend). Not only was price hitting support, but it was also consolidating between support and resistance lines. Price then pushed above the resistance line, going past the target price.