subject: Trading Patterns - What Exactly Is The 1-2-3 Pattern Set-up? [print this page] You will need to be familiar with identifying chart price trend like uptrend and downtrend to better recognize a 1-2-3 chart trading pattern. The basic chart pattern of an uptrend is a series of higher high and higher low and for downtrend a series of lower high and lower low.
1-2-3 pattern is one of the popular reversal trading patterns in forex trading. That is why it should always be preceded by a trend, it could be from an uptrend or from a downtrend. It will be easier for you if you can easily spot a trend since the 1-2-3 chart pattern appears near the end of the trend or when the trend start to lose steam and starting moving sideways.
1-2-3 chart trading pattern start after an uptrend or downtrend pauses and stop registering higher high or lower low in an uptrend and downtrend respectively. The first thing you should do is to connect all the recent high and the recent low to establish a sideway price range. A sideway trading range will be established from these two lines.
Once you have the price inside the trading range mark recent high before the failed higher high as 1 then the low that come next as 2 and the failed higher high as 3. This is the same for the steps in a downtrend and this is the main component of the 1-2-3 chart trading pattern.
The trigger will be push and activated once the price moves and breaks the point leveled as number "2". If the price moves and breaks the recent low leveled as 2 in an uptrend this is a sell signal. And a price move to break the recent high or the point mark as number "2" in a downtrend is a buy signal. It is best if you will consider the current oscillator signal and direction as an added confirmation to the 1-2-3 chart pattern trade.
This is a quick trade that is why you need to place your stop loss 10-20 pips off your entry price and you should already be profitable in the next three candles then quickly move your stop loss to break even, target the next nearby moving average, Fibonacci levels or identified level of support or resistance. You can use this in the hourly time frame down to the one minute chart of course the higher the time the higher its reliability.
This pattern is not cast in stone and can some time result to false break out, always trade with a good risk reward ratio, this will make you profitable over the long term. In anything you do the more times you do it the more you become more convenient doing it, this is the same with trading patterns, once you get to trade a certain pattern more often you will get to be more familiar with its nature and become more confident in trading such patterns.
by: Ownen Moore
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