1-2-3 Patterns
The so-called “1-2-3” Patterns are reversal patterns.
The key points of a 1-2-3 formation are as follows:
In an uptrend it creates what looks like an “M”... ·
a Higher High (1)·
a Higher Low (2)·
a Lower High (3). (3) does not go any higher than (1).
In a downtrend it creates what looks like a “W”... ·
a Lower Low (1)·
a Lower High (2)·
a Higher Low (3). (3) does not go any lower than (1).
(1) Is the Bottom/Top (depending on original trend direction).
(2) Acts as Correction.
(3) is a retest of (1) that does not go beyond it.
Trading a 1-2-3 Pattern
A horizontal Break Line is drawn from (2) and a break of that level serves to identify the trade entry area.
Projecting the length of (1) – (2) from the break Line should provide a potential target projection.
Mark Crisp, in the PDF referenced below, explains further:
1.The more candles involved in the formation is indicative to the size of the break out. The more candles, the bigger the break.
2.1-2-3 patterns work across different time frames, but the bigger the time frame, the larger the trend development.
That completes our overview of the 1-2-3 Pattern, it really is as simple as that.
These patterns can certainly form on their own.
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