123 Trading strategy
123 Trading strategy
The 123 top and bottom is a very powerful pattern that signals a reversal of a trend. It is also used as a trend continuation pattern, we will look at the 123 pattern as an indicator of the end of a trend and also a market reversal. Hence, it is also known as the 123 top and bottom pattern.
How the Pattern is formed
The forex market market moves in trends, there is a pattern of higher highs and higher lows, In order for the market to maintain an uptrend each successive impulse swing must take out the point 2 in the formation. When price surpasses the price level at 2 then you can use that as a confirmation that we starting over again and 123 pattern is forming again in the market.
- When there is a pullback to an uptrend it will put in a low and from that low price continue to rally.
- This being a short term resistance zone the price moves begins to retrace back in the in the direction of price 1.
- This level is considered 1 only when the price at level 2 is broken.
- Price level 1 is the lowest low point that’s a support
- Level 2 is the peak point that is a potential resistance
- Level 3 is the second low on the support level.
This strategy does not use any technical indicators. The only prerequisite of the strategy is to know the nit greetings of the 123 patterns before executing the strategy.
Good for Currencies most
The strategy is suitable for trading in all currency pairs. However, it is suggested to look for the trading opportunities in major and few minor currency pairs only as the patterns are more reliable and evident in these pairs.
Market entry points
There are two ways of entering the market in this strategy. The first one is an aggressive way to take an entry on a break of point 2, and as the market starts moving in that direction. Traders who are confident about the pattern and have belief in the market can opt for such an ‘entry.’ The second one is a conservative approach where one takes an ‘entry’ at the test of the previous support or resistance. This gives additional confirmation that the market is ready to go in a favorable direction.