Reversals and mean reversion · Advanced
Second entry (H2 / L2) - Al Brooks
In a trend, the first attempt to resume often fails; the second attempt, the High 2 or Low 2, traps the counter-trend traders and usually works better.
Al Brooks, a former ophthalmologist and full-time trader, describes price action bar by bar in his "Trading Price Action" books. One of his core ideas is bar counting: counting the attempts of a pullback to end, and preferring second entries.
Why it works
In a bull trend, a pullback usually has two legs down. The first time a candle trades above the previous candle's high is a High 1; if that fails and the pullback makes a second leg, the next break is a High 2.
By the second leg, the traders betting on a reversal have tried twice and failed; their stops above the pullback fuel the resumption.
The rules
Setup
- A clear trend: price mostly above a rising 20 EMA, with higher highs (bull) or the mirror image (bear).
- A pullback with two legs, ideally reaching the 20 EMA.
Entry
- Bull trend: buy stop one tick above the high of the signal candle of the second leg (the High 2).
- Bear trend: sell stop one tick below the low of the signal candle of the second bounce (the Low 2).
- The signal candle should be a strong candle in your direction, closing near its extreme.
Stop loss
- One tick beyond the signal candle, or beyond the pullback extreme.
Exit and management
- Scalp target at about 1× the risk, or a swing target at the trend high.
Filters that improve it
- Avoid H2s in a tight trading range: there, second entries are less reliable.
Worked example
Illustrative Nasdaq 100 example on 5m: in a bull trend price pulls back to the 20 EMA in two legs. The first bounce (H1) fails. At the end of the second leg a strong bull candle closes near its high at 18,512. Buy stop at 18,513, stop at 18,498 (below the signal candle), target at the trend high 18,545 (about 2R).
Illustrative numbers, not a recommendation.
Common mistakes
- Counting legs in a sideways market where there is no trend.
- Taking a weak signal candle (small body, close in the middle).
How to practise it
In Candlemind, read 5m candles one by one with the 20 EMA on and count the legs out loud: H1, H2. Enter with a pending buy stop above the H2 signal candle.
Pre-trade checklist
- Clear trend with a rising (falling) 20 EMA
- Two-legged pullback
- Strong signal candle at the second leg
- Stop order one tick beyond it
- Stop beyond the signal candle
Frequently asked questions
What is a High 2 in trading?
The second time, during a pullback in a bull trend, that a candle trades above the high of the previous candle: a second attempt to resume the trend.
Why are second entries better?
Because the first counter-trend attempt has already failed twice, trapping traders on the wrong side.