The 1-2-3 Strategy
The 1-2-3 strategy is a simple system based on a 3 point chart pattern. When looking at a 1-2-3 downward pattern, the 1 would be at the highest and for a 1-2-3 up, 1 would be at the lowest based on the swing in the pattern. See the diagrams below for more information. Usually the 1-2-3 down trend comes up after a trend that was moving upwards. The 1-2-3 up pattern appears after a downward trend. You only enter the market when the resistance or support of point number 2 is broken. The 1-2-3 up pattern is not valid if the point number 3 is at a point lower than 1. The same with the down pattern, point 3 should not be higher than the point 1 for it to be valid. The strategy cannot be applied correctly if point 3 is at a higher level on the up cycle or lower on the down cycle. To stay safe when using this strategy you need to ensure that you stick to this specific point and not enter the market at this point. This strategy relies on reversal patterns so you need to stick to this one specific rule. This strategy is a little harder for amateurs to grasp, but once the strategy and the highs and lows are understood, the application of the 1-2-3 strategy becomes a lot simpler.
This particular strategy has been around for many years and is used reliably by traders of Forex, equities and stocks alike. This is a strategy based on price action and the resistance and support principles are clearly laid out. Although this is particularly used as a reversal strategy, it can be used with tends in a normal way as well. In diagram 2, you can see the lows and highs are numbered, the new trend is downward and there have been a number of successful Put opportunities. Whenever the support at point 2 is broken, the market is entered and all trades are taken going with the trend. There is protection from bad trades by making sure that point 2 is broken on the lowest point, if not, this would be a losing trade.
How does it work?
To use this strategy requires software that can provide accurate charting. To give an example of how this strategy can be used, we will take a down pattern to work with. The opposite would apply for an up pattern. When there has been a strong move upwards, you can start looking for the 1-2-3 pattern to start to form. Start off with the first peak which is the top of the trend if the strategy works out. Should the price continue to increase, you would need to mark the newer high point as point 1. We should see a counter move start and the lowest point of the move can be marked as number 2. If the new move shows up higher than the original point 1, then this strategy will not work for this specific trend. If the new point is not higher than the previous point 1 and the move appears to be downwards, mark the highest point of the latest move as number 2. This completes the pattern but remember to stick to the rule. The price must move low enough to break the point that was set as number 2, which was the lowest point previously. This means that we can enter a trade by choosing Put as we have met the strategy conditions. See images below for more information:
Advantsges of this strategy
This particular strategy has a high success rate as it can help avoid bad trades as well as giving good indicators of potential good trades. This is not a fail-safe method as the changes in the market can sometimes be unpredictable and you can end up with some false positives, but overall, this specific strategy has a good chance of earning some good profits if applied correctly.
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