The 123 Forex breakout strategy is based on a very popular
price action technique that can be very profitable if done correctly.
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.
See image below:
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.
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