2B Breakout System

The 2 bar breakout system is designed to capture short term trends by going long or short depending on the pattern formed by the 2 most recent price bars. The essence of this method is to look for reversal of the immediate directional momentum.

The rules of this method are:

Long trades

Enter:
1. Today’s low is less than the previous day low
2. Today’s high is less than the previous day high
3. Today’s close is less than the open
4. Go long at the next trading bar if the price goes above today’s high + 1 tick

Exit:
1. Use a trailing stop at previous day’s low

Short trades

Enter:
1. Today’s low is greater than the previous day low
2. Today’s high is greater than the previous day high
3. Today’s close is greater than the open
4. Go short at the next trading bar if the price goes below today’s low - 1 tick

Exit:
1. Use a trailing stop at previous day’s high

To see this method in action, let’s try it out on AUDUSD currency pair.

For long trades, the trading record is as such:

This method generates 23 trading signals from May 2009 till Oct 2010. Of the 23 trades, 14 were profitable (not considering transaction cost). That gives a winning probability of 60.87%.