Everything you need to know about the “1-2-3 Pattern” [+ strategy]
1-2-3 pattern - quite common reversal formation in the forex market, which has a high probability of concluding a profitable transaction and therefore is often used by most forex traders to enter and exit the market; occurs on all timeframes and on all currency pairs, including the futures market.
This pattern, despite its simplicity, allows the trader to find surprisingly accurate levels for entering and exiting the market.
You can see examples of 1-2-3 patterns in the figure below (1-2-3 Down - pattern directed down and 1-2-3 Up - upward pattern):
The basic rules for concluding transactions on a 1-2-3 pattern:
1) after the formation of points 1, 2 and 3 - set a pending Buy Stop order higher (for buying) or Sell stop - lower (for selling) point 2. Preference should be given to patterns where point 3 is located at a distance of 23.6% to 50% (maximum 61.8%) according to the Fibonacci, delayed from point 1 to point 2.
2) We place the stop-loss for point 1. As the price moves in the direction of the transaction, the stop-loss can be moved to point 3. You can also initially place the stop-loss under point 3, if point 3 pushed from 50% or 61.8% Fibonacci between 1-2.
3) The minimum take profit is equal to the distance 1 - 2, set aside the price movement from point 3. The maximum take profit can be calculated using Fibonacci extensions. Those. it can be equal to a distance of 1.68 from 1-2, a distance of 2 and 2.68, etc.
Alternatively, you can conclude, for example, 2-3 transactions with an equal lot and fix take profit at a distance of 1 from 1-2, 1.68 from 1-2 and 2.68 from 1-2. At the same time, when taking profit for the minimum goal, the remaining transactions can be transferred to the breakeven point and wait for further developments (if you wish, you can use the trailing stop), if the price moves further - we fix the next take profit, does not move - the stop loss will work at the breakeven point.
See example in Figure 1:
For more aggressive traders, you can enter the market by breaking the trend line, after the formation of point 3 - Figure 2:
Figure 3 - an example of fixing TP by Fibonacci extensions:
where, Sell 1 and Sell 2 are the possible entry points to the market for selling, TP 1, TP2, TP3 are the possible options for taking profit on the 1-2-3 pattern.
Trading Strategy 1-2-3 Video:
And also I attach the trade report of this graphic model: