The 2B is quite a simple indicator to spot, and indicates/confirms a price reversal is underway.

A 2B is formed when a stock’s price approaches a previous high (low). The price exceeds the previous high (low), and then drops back below that level to settle for the day. I only use this indicator on daily charts, though others may find it useful on hourly charts as well. Once the stock settles below (above) the previous high (low) the 2B is confirmed. This can happen the same day, or even the next day, but beyond that it generally gets a little messy.

The original author of this indicator uses the next day’s open, following the confirmation closing candle, as an entry price for a position. We also use the 2nd high (low) as the stop price for any position. If it breaches that level, the 2B is broken.

It’s also worth noting that this indicator is meant to signal a reversal in a trend. So there would need to be some sort of trend to be reversed, which is something that takes at least a few days to happen. You can’t have a 2B occur just between two or three days time. The highs would need at least a few days in between them.

So, to wrap up, this is another indicator to add to your toolbox. It isn’t meant to trade completely on its own, but combined with support/resistance levels, moving averages, trendlines, fundamental news, etc.. it can provide valuable insight and the additional confirmation needed to make a trading decision.