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.

The 1-2-3 chart trading pattern is a reversal chart pattern; That is why it should always be preceded by a trend, it could be from an uptrend or from a downtrend. That is the reason you need to be an expert in identifying an uptrend and downtrend.

It will normally start when a trend slowly turns to a trend less movement or sideway move, this happen when it stop registering higher high in an uptrend or stop registering a lower low in a downtrend. First step is draw a horizontal line connecting the recent high before the failed higher high and connecting the recent lows. Once the sideway trading range is set and established using the two horizontal line you should start marking the 1-2-3 points in the chart.

Mark number “1” the recent high before the failed higher high and mark the next low as number “2” and lastly the failed high should be marked as number “3”. You now have the main points needed for a 1-2-3 chart trading pattern.

The trading signal will be generated once the price moves below or above the price leveled as “2”. A move downward to break the recent low also marked as number “2” is a sell signal in an uptrend. While if the price moves and breaks the recent high leveled as “2” in a downtrend this 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.

Your price target will be on the next Fibonacci levels or MAs or better yet a established support or resistance level and because this is a quick trade you should be profitable in the next few minutes and you should quickly move your stop loss to break even or exit the trade if still not on the green zone after a few minutes. 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.

No trading pattern is 100% flawless there will be times that it will not work as plan, it always best to protect yourself at all times. Practice makes perfect, that is why you will need to practice trading any pattern you put into your trading arsenal, once you get familiar with the nature of a pattern you start to understand how it moves, how it behave and you start to have a deeper understanding on the psychology behind the trading pattern and start to take advantage of the opportunity presented to you by such trading patterns.

Discover more about effective patterns you may use for trading through clicking on how to day trade. Additionally you can visit swing trading strategies for more useful trading tips.

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Filed under: Currency Trading

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