Two-bar Breakout System (2BB)

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 EURUSD currency pair. 

For long trades, the trading record is as such:

Position	Entry Date	Entry Price	Exit Date	Exit Price	Bars Held	Profit/Loss (pips)
Long	5/7/2009	1.3374	5/11/2009	1.3615	3	241
Long	5/18/2009	1.3486	5/25/2009	1.4016	6	530
Long	6/23/2009	1.3936	6/29/2009	1.4044	5	108
Long	7/9/2009	1.3938	7/13/2009	1.3941	3	3
Long	8/18/2009	1.4171	8/24/2009	1.4329	5	158
Long	8/27/2009	1.4349	8/31/2009	1.4281	3	-68
Long	9/30/2009	1.4646	10/1/2009	1.4574	1	-72
Long	10/8/2009	1.4737	10/9/2009	1.4703	1	-34
Long	10/29/2009	1.4841	11/1/2009	1.471	2	-131
Long	11/2/2009	1.4742	11/3/2009	1.4702	1	-40
Long	11/4/2009	1.4811	11/9/2009	1.486	4	49
Long	12/23/2009	1.4332	12/28/2009	1.4356	3	24
Long	12/31/2009	1.4361	1/4/2010	1.4315	2	-46
Long	1/13/2010	1.4546	1/14/2010	1.4454	1	-92
Long	1/22/2010	1.4144	1/25/2010	1.4147	2	3
Long	2/26/2010	1.3571	3/1/2010	1.3614	2	43
Long	3/10/2010	1.3636	3/15/2010	1.3758	4	122
Long	3/16/2010	1.3774	3/18/2010	1.3724	2	-50
Long	3/26/2010	1.3388	3/29/2010	1.3434	2	46
Long	5/27/2010	1.2345	5/30/2010	1.2267	2	-78
Long	6/7/2010	1.1966	6/17/2010	1.2252	9	286
Long	6/30/2010	1.2291	7/5/2010	1.2542	4	251
Long	7/6/2010	1.2558	7/9/2010	1.2623	3	65
Long	7/13/2010	1.2646	7/19/2010	1.2888	5	242
Long	7/22/2010	1.2914	8/4/2010	1.3145	11	231
Long	10/5/2010	1.3785	10/8/2010	1.3855	3	70
Long	10/28/2010	1.3879	11/1/2010	1.3955	3	76
				Total		1937

The method generated 27 long signals with 18 profitable trades giving a total return of 1937 pips.