123 forex trading strategy

Learn The Powerful 123 Forex Trading Strategy

The 123 Forex trading strategy is based on price action and normal Forex market structure that any trader should know.  The 1 2 3 trading strategy is used as a continuation trading setup that is designed to take advantage of the trend of the market.

The failure of the 123 trading strategy is also a trade setup but can also warn you of potential price consolidation in the market or even a trend reversal in whatever Forex pair you are watching.

Keep in mind that even though it is a continuation pattern upon confirmation, it is also a reversal pattern from the short term trend direction.

1 2 3 Trading Pattern Formation

In any trending market, there is a pattern of higher highs and higher lows.  In order for the trend to the upside to remain active, each successive impulse swing must take out the point 2 in the formation.  When price surpasses the price at #2, the trader can use that as confirmation that the 1 2 3 chart pattern is present.

This is a line chart that explains the concept of the 1 2 3 trading pattern and in this case, we are assuming an up trending market

1 2 3 Trading Strategy

Let’s walk through each number and this pattern should be familiar to any trader who’s been looking at charts for a while.

1. When an uptrend pulls back, it will put in a low and from that low, price continues to rally.
2. This acts as short term potential resistance.  Price rallies to this point and then begins to retrace back in the direction of the price at #1.  We DO NOT want to see price retrace all the way to the price at #1.  If it does, we will consider that to be the formation of a double bottom chart pattern and would trade that according to the trading plan you have set up for that price pattern.
3. This level is also considered a #1 only when the price level at #2 is broken.  This price point is the level at which the corrective move completes and the price reversal to the upside begins.

Please note that the 1 2 3 price pattern is only confirmed once the high at point #2 is taken out by price.

You can also see that the 1 2 3 trading strategy is taking advantage of the stair step nature of the market that is needed if a trend is going to continue.  It is at the confirmation of the patter that a trader can place a conservative trading position in the market.

1 2 3 Chart Pattern By The Numbers

In an uptrend market situation, price will make 3 points

• Point 1 is the lowest low point, forms a support level.
• Point 2 will be the peak or the highest point, forms a level that we consider as potential resistance
• Point 3 will be the 2nd low point, a support level ( which must be higher that the point 1 which is the lowest low point ).
• The breakout of price above point 2  signals the continuation of the uptrend.

In a downtrend market, the 1 2 3 chart pattern forms when:

• Point 1 becomes the highest peak when price finds resistance and moves down.
• Point 2 becomes the lowest low point (forms support) and price moves up
• Finds another resistance at point 3.
• when price breaks the  point 2 support level,it indicates that the market is most likely to continue downward

Trading Strategy Trading Plan

Let’s take a look at a potential trading method to trade the 1 2 3 trading strategy.  We will look at a conservative method for those traders that need a little extra confirmation in their trades.

Keep in mind there is a cost involved.  The longer you wait to get involved in a trading position, the larger you will have to make your stop loss.

123 Trading Plan

Trade Setup 1

You should be familiar with the numbers and what they represent on the chart.  We can see that price rallied from point 3, found resistance at point 2 and retraced.  We now have a double bottom chart pattern and just as the 1 2 3 trading strategy needs a breach of #2 to confirm the pattern, so does the double bottom.

If you do get a double bottom after a move in price, that could signify weakness in the market.  If bulls were fully in chart during the retrace at 2, we should not see two shots at the level #3.

Price breaks above #2 and you can either enter at the breakout or, my preference, take a position at the close of the candlestick to confirm a true break.  You can also put an order to buy slightly above the candlestick that broke the #2 level.

Your stop loss should be below #2 with buffer room to allow for noise.  You can also, my preference is coming, use a 14 period Average True Range x 2.

Trade Setup 2

Price rallies from #1 and gives us a strong reversal candlestick at #2.  Once price begins to retrace, put this currency pair on your radar.  Price find support at #2 (inside the previous consolidation pattern from trade #1) and shows strength as it rallied to #2.

Once price shatters the #2 price zone, enter at the close of the daily candlestick (or whatever time frame you are using) and use an ATR stop.  The average true range stop for this trade would actually be in the middle of the candlestick that printed just before the breakout candlestick.

Trade Setup 3

Each trader should understand this pattern by now so let’s focus on the range that is occurring. We have most variables need for the 1 2 3 trading strategy but price is forming a range near the level at #3.

That is NOT something we want to see for a clean 1 2 3 chart pattern.

When price is basing in this fashion, it shows that the side that was dominant, in this case bulls, have tired.  As a trader for years, I have seen the following occur:

1. Price trends nicely
2. Weakness shows up in this fashion
3. Traders will take another run to the upside, break #2 and then see this fail back inside

This formation of the consolidation is also a great trade entry into the potential of the 1 2 3 chart pattern continuing.

Front Running

We can position early in the 1 2 3 formation when we have basing occurring.  Ideally, we would like to see some form of basing near the resistance level (red line).  You can see the green dashed line and then price rockets to resistance.

That is not conducive to a sustained break of resistance.

The more favorable setup is to have either basing near the extreme or a slight pullback in price which we see with orange box.  The break out then occurs after that pullback.

Those types of breaks are more effective and see if you can understand why.  Some would think the first break would carry more weight because the drive started midway in the range.

But traders who positioned lower will also look for scalping Forex trades at the top of the range – is that not how you play a range??  Yes.  The breakout that occurs is driven by traders who went long at the bottom of the range.

Let’s see some detail in this chart

1. Price could not rally far from the low which is showing the 1 2 3 chart pattern – the stair stepping in a trend – is under attack.  Price can’t break lows so traders go into range trading mode
2. The formation of this smaller range allows traders to position with a tighter stop loss just under the small range.
3. You can see there was a drive to this level and then a very weak candlestick shows up.  This is either traders positioning short in the range or the longs taking profits.

That is the type of thinking you want to have as a trader.  Do not trade blind!

What Is Your Entry Strategy?

As discussed, you can enter at the close of the break out candlestick (signal candlestick) or entering your trading position at a break of the high.

Some traders may want to use a multiple time frame approach and enter on a lower time frame.  In my own trading and in my years as a trader, I look to simplify.  Entering at close or breaks of support levels or resistance levels (highs and lows of breakout candlesticks) is my favored entry

Taking Your Profits

Some traders would like to see specific price targets to add to their trading plan.  Other traders see the power of trailing their stop loss to take as much as the market is willing to give.

You can use structure targets such as higher resistance levels in an uptrend.

You can use legs 1-2=3-4 which suits the 1 2 3 trading strategy.

One to One Targets

I color coded each swing so you can see where I am measuring from.  I use the 3 point Fibonacci tool and set it to the 100%.  You can see the first two trades nailed the targets.  The third trade hits the .618 Fibonacci level which is quite popular when used to portion out swing points.

Summary

The 1 2 3 trading strategy is a pure price action trading method that uses a sound approach to trading.

No trading indicators are required although I do suggest the ATR for stop loss placement.

You must have a proper risk protocol as part of your trading plan.

Day trading Supertrend Strategy

This SuperTrend day trading strategy is a simple trading strategy & its easy to spot the signal of SuperTrend green or red and also has simple trading rules which  stock traders can find easy to use

Timeframes : 15 Minute

Pairs : Indian Stock (Future Script)

Indicators: Supertrend (7,3)

Buy Rules

Chartink Screener for Buying scripts

https://chartink.com/screener/buy-supertrend-indication-by-stock-alphabets

1. Entry Point:

Check day first 15 minute candle appear green supertrend indication 

check if open = Low or Check last two days Higher high &Lower High(HH,LH) 

Mark 15 minute candle high point break then go for long

2.Target Point

Script 1% target

3. Stoploss

Day first 15 minute candle low 

NESTLEIND_1st_June_2018

Sell Rules

Chartink Screener for Selling scripts

https://chartink.com/screener/sell-supertrend-indication-by-stock-alphabets

1. Entry Point:

Check day first 15 minute candle appear red supertrend indication 

Either if open=high or Check last two days Higher Low & Lower low (HL,LL)

Mark 15 minute candle Low point break then go for short

2. Target Point

Script 1% target

3. Stoploss

day First 15 minute candle High

GMRINFRA_1st_June_2018

KSCL_1st_June_2018

Pidilite_1st_June_2018

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Risk Disclaimer

All information is for educational purposes only. Nothing should be considered as a buy or sell recommendation. The risk of loss in trading stocks, commodity futures and options is substantial. Before trading, you should carefully consider your financial position to determine if trading is appropriate. When trading stock, futures or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results. This email may is a paid advertisement. It could be for a product or service that is not offered, recommended or endorsed by Stock Alphabets and neither the company nor its affiliates bear responsibility or control over the content of the advertisement and the product or service offered. Proceed at your own risk.

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Ross Hook Pattern Trading Strategy

The  ross hook pattern  trading strategy is a 100% price action trading strategy that is based on the ross hook pattern setup.

There is no ross hook pattern indicator you are going to use here because all you need will be your eyes to be able to spot a ross hook trade setup when it forming and take trades accordingly.

Many forex traders, at first find it difficult to understand the ross hook chart pattern.

But trading the ross hook is easy if you know what a ross hook pattern looks like.   In this post, I will show you how to spot the ross hook chart pattern and also how to trade it.

WHAT ACTUALLY IS THE ROSS HOOK PATTERN?

So what is the ross hook pattern and what does it look like?

In simple terms, the ross hook pattern is a very slight variation of the 1-2-3 pattern.

This means if you know what a 1-2-3 pattern is, then it will be quite easy for you to understand the ross hook pattern.

So what are the 1-2-3 chart patterns?

Well, they are reversal patterns and they can be either bullish or bearish:

1. The” 1-2-3 high” bearish formation &
2. the “1-2-3 low” bullish formation.

See charts below…

Where do you look for the ross hook patterns?

• Look for 1-2-3 high formation at the end of an uptrend move where you expect to see the market move downward based on your analysis
• look for 1-2-3 low formation at the end of a downtrend move…where you expect the price to  start moving up.

The Formation of 1-2-3 Chart pattern

Now lets talk about the 1-2-3 high pattern formation:

• the point 1 is created when a previous upward movement end and price begins to move down. (the market has to be in an uptrend initially)
• then price moves down to point 2 and then price starts to climb up…
• price goes up to point 3 but that’s far as it can get and starts to fall down again.
• there can be more than one candlestick (or bar) moving point 1 to 2 and again from point 2 to 3.
• when it takes more than 3 candlesticks or bars to form a higher high/low, then this is congestion.

For the 1-2-3 low pattern formation, its the complete opposite of the 1-2-3 high pattern formation.

• point i is created when a previous downward movement ends and price begins to move up (the market has to be in a downtrend initially)
• price moves up to point 2 and then starts to go down…
• price falls down to point 3 but that’s about as far as it can go and starts to climb back up.

WHEN A 1-2-3 PATTERN IS NULLIFIED

When a 1-2-3 chart pattern is formed, there will be times when:

• price moves above point 1 for 1-2-3 highs
• or price moves below point 1 for 1-2-3 lows respectively.

This means that the 1-2-3- pattern is no longer valid. See example below:

HOW DOES THE ROSS HOOK PATTERN FORM THEN?

This is how the ross hook pattern actually forms:

• the ross hook pattern is the pattern that comes AFTER the  1-2-3  pattern forms. This means that the high or low of the 1-2-3 pattern must be broken and then the correction after that is what ross hook pattern traders look  to see if it is a ross hook or not.
• this means that in an uptrend, you watch to see first that break of the point 2 (peak) of the 123 pattern and then wait for the correction.
• the failure of the candlestick/bar to continue going up (which means price goes down again…a correction) creates the Ross Hook!

So in a similar but opposite, is the Ross Hook Pattern for a 1-2-3 high formation:

• the ross hook pattern is formed after a breakout happens on the 1-2-3 high formation and a correction happens.
• so in an downtrend market, the price will fall down past the low of point 2 in in the 1-2-3  high formation.
• the failure of the candlestick/bar to continue going down (which means price goes up again…a correction) creates the Ross Hook!

If you don’t understand, keep going back and read slowly 2 to 3 times…then you will understand Ross Hook.

ROSS HOOK PATTERN TRADING RULES

Refer to the chart below which shows you how to trade the ross hook pattern:

Now, this if for the first 1-2-3 formation starting from the left (refer to price chart above)and here are some things to note about that:

• the market is obviously in an uptrend as can be seen with prices moving above the moving average (the line in the middle and also moving close and within the upper bollinger band line.
• at point 1, you can see that the market make a peak then on the next day, it falls, making point 2.
• then a correction happens-price moves up with a big green candlestick but this candlestick fails to close above the high(or peak) of point 1.
• so now you have an opportunity or signal to short(sell) based only on the 1-2-3 pattern using a sell stop order placed just below the low of point 2.
• however on the 4th day, the candlestick does not fall below so any sell stop pending order place based on the 1-2-3 pattern anticipating a breakout will not be activated.

Now lets go to the 2nd 1-2-3 chart formation…

The next few days, the prices inched gradually up and effectively made the first 1-2-3 pattern null and void because another high peak formed higher than the first point 1.

• Then the next day  point 2 is formed and then on the 3rd day, point 3 is formed.
• Price then inches up but fails to go above point 1.
• the 4th day sees a big red candlestick making a breakout down past the low of point 2. If you had placed a sell stop order just under the low of point 2, it would have been activated.
• that red candlestick forms the ross hook because on the next day, its an up day….a green candlestick forms.
• now you know that ross hook has formed, so you place a sell stop order under the low of the ross hook anticipating price to fall back down and activate your sell stop order.

This are examples of sell trade setups but for buy trade setups, you just do the exact opposite.

ROSS HOOK PATTERN TRADE SETUPS AND EXAMPLES

That’s how to trade the Ross Hook Pattern.

TRADING RULES FOR ROSS HOOK PATTERN

1. The ross hook pattern forms after the formation of 1-2-3 trading pattern.
2. In the process of waiting for the Ross Hook Pattern to form, you can actually trade the 1-2-3 pattern breakout as well.
3. The ross hook pattern is a breakout  trading strategy
4. Once the ross hook forms, you can either place a pending order just above/below the ross hook pattern to catch a breakout when it happens or…
5. Or if after the ross hook pattern forms you need to trail your pending orders above the subsequent highs that form (for buy setup) until price moves back up again and activates your bending buy stop orders.
6. Similarly but opposite for sell stop orders: after the formation of ross hook, you can trail you sell stop orders under the lows of each subsequent candlestick that has a higher low until price falls back down and activates your sell stop order.

TAKE PROFIT TARGET OPTIONS FOR ROSS HOOK PATTERN

These are a couple of suggestions you can use to take profit based on the ross hook pattern setup.

1. measure the distance in pips between point 1 and RH and use that as your take profit target level.
2. measure the distance in pips between point 3 and RH and use that as your take profit target level.
3. measure the distance in pips between RH and the Correction low (for a buy setup) and RH and correction high (for a sell setup) and multiply those pips by 2 or 3 and that should give your profit target levels.
4. Or if you don’t want to place take profit targets then why not trail stop your trades by moving stop loss behind each peak or low point that forms as your trade moves in favour? In a good trending market, this will allow you to  ride the trend most of the way and lock in and capture many profitable pips.

HOW TO PLACE STOP LOSS AND TRADING RISK MANAGEMENT

• Use the nearest peaks and lows for your stop loss placement. This way, you have less chance of getting stopped out prematurely.

• Remember, Every trade you place has potential to be a losing trade. So practice prudent trading risk management.

• In forex trading, you need to cut your losses quickly and and trade with acceptable risk like risking only 1-2% of your trading account in each trade.
• In that way, you can always live another day to trade an increase your forex trading account.