The pattern vocabulary, the broadening formation, and why reversals through a range speed up.
Lesson 4 — Reversals and continuations
With only three bar types there are only so many two-bar sequences. Each has a name, and the names are how ideas get written down in the app.
Continuations
- 2u-2u / 2d-2d — participation continuing in one direction.
- 1-2u / 1-2d — an inside bar resolving: the compression breaks and the direction of the break is the signal.
Reversals
- 2d-2u / 2u-2d — the most common reversal. A bar breaks one way, then the next bar breaks straight back through the other side. Whoever chased the first break is now trapped.
- 3-2u / 3-2d — a reversal out of an outside bar.
- 2-1-2 and the 3-1 / 1-3 sequences — compression inside expansion, or expansion out of compression.
The direction of the second bar's break is always the trigger. Nothing is a setup until the break happens.
The broadening formation
Take any 3 — it printed a higher high and a lower low than the bar before. On the timeframe below, that's a range expanding on both sides: a broadening formation. Every 3, on every timeframe, forever.
Price discovers by expanding. The practical use: the other side of the range is the distance. A reversal at one edge has the opposite edge as its natural target.
Why reversals through a range speed up
Traders place stops against obvious pivots. When price reverses back through a range, it runs those stops, and stops are market orders — they accelerate price. A reversal in the direction of continuity, back through a range full of trapped traders, is the core trade of the methodology.
Structure adds the where
Order blocks, fair value gaps, sweeps, and optimal entry zones — the SMC vocabulary — describe where interest sits. The Strat sequence tells you whether it's being acted on. A structure level with a 2u out of it, with continuity, is a thesis. A structure level alone is an observation. The SMC scan and OTE scanner find the where; the Signal Scan finds the whether.
Do this today
Find five 2d-2u reversals on a daily chart of anything liquid. For each, mark the prior range and where price went. Notice how often the far side of the range was the destination.