Wednesday, September 4, 2013

How To Trade 1-2-3 Patterns

1-2-3 pattern is a good method for detecting trend change. Trading with this method allows the trader take advantage to enter early on the new trend. In my trading I usually use 1-2-3 patterns as a part of some other indicators or divergence to confirm the trend change.


1-2-3 pattern entry trading on metatrader chart
1-2-3 pattern and entry

Trading 1-2-3 patterns


I will now explain how I use to trade this method. Select the currency pair and time frame you want to use. 

Explore the chart and look at the price action. We need to identify the current:

lower high (LH)
lower low (LL)
higher high (HH)
higher low (HL)

As you can see in the picture, after the price start to make new HH and HL (HH is formed when price goes higher than previous LH, HL is formed when price stays higher than previous LL) we can expect the trend to change from down to uptrend.

From up to downtrend, price start to make new LL and new LH.

This is the time when 1-2-3 pattern shows up. When we see new HH and HL forming in downtrend we measure the latest LL as number 1, new HH as number 2, and the new HL as number 3. Vice versa for uptrend.

Long Entry

1 pip above the HH candle (2). Stop loss 2 pips below the HL candle (3). TP is same amount of pips as SL.

Short Entry

1 pip below the LL candle (2). Stop loss 2 pips above the LH candle (3). TP is same amount of pips as SL.

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