In my dojang, we do both kinds of one/three-step sparring people have described. The pre-scripted, kata-like stuff, and the speed/reaction drill. You seem to do both at least all the way up to black belt, though I'm not sure about beyond.
Really, I'd rather we did it the way Odojang describes. Seems like a good progression and a useful teaching tool, done that way.
in my school we do both the scripted and the freestyle exchanges I find merit in both because the scripted response is a way of drilling reflex memorywhich some of the one steps are really good for but some are just too long and complex the block and attack ones are best.the block step kick,hit,hit,then kick again are too complex and do not take into account the fact your attacker is going to react also.but to get your belts ya gotta know them,but my sobum can tell which ones I like and which ones I don't due to how fluidly they come about.
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