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robdee Nov 16, 2011 11:57am | Post# 1

123PatternsV6 revisited
 
Welcome Traders

The purpose of this thread is to continue to develop trading rules based on 123 patterns.

In November 2010 I published an indicator called 123PatternsV6. That indicator was the result of much discussion and development work in a thread called [Multiple Trading systems gbpusd only]. Zamanib started that thread and I recognise his valuable work on that project.

The version of 123PatternsV6 that I use is unchanged for more than a year now and can be downloaded from that previous thread.

Download 123PatternsV6

123Alarms addon see post #27
123Alarms update with email alerts post #1286 (7 Dec 2011)

Why a new thread ?

I am starting this new thread to start with a new focus and avoid confusion with that previous multiple systems thread.

Guidelines to keep this thread on-track

This thread's focus is using 123PatternsV6 for trading decisions.

 

  1. 123PatternsV6 custom indicator only
  2. No other custom indicators or systems discussed here
  3. Any MT4 built-in indicators and chart objects are OK
  4. Any currency pair is OK
  5. Any time frame is OK

Thread Housekeeping

 

  1. Normal charts only. Go to the previous thread (listed above) for a discussion of rangebar and other charts.
  2. Keep posted charts clean and easy to read. Use MT4 File.Save As Picture to create gifs. Use the attachment button in FF post editor to upload gifs and then insert into your post. This way we will not get those huge chart images wrapping the thread off the screen.
  3. When quoting someone else delete most of their post. There is no point quoting an entire 50 line post with a one or two line response. Learn how to use the editor properly, quote only the relevant words and cut the rest.

Goals

As you know a complete trading system involves much more than somebody's favorite indicator. Risk management, position sizing, timing, trading journals to evaluate progress, entry rules, exit rules and so on.

My goal for this thread is to work together on understanding 123 patterns, when are they useful, and when they are not.

In my posts I will filter out my own 'great ideas' or 'rules' that do not actually support consistent profit making. For example if adding a moving average looks cool/interesting but in reality makes it harder to make profitable trading decisions then it must be removed.

If you have an interest in 123 patterns and would like to work towards these goals then welcome trader, let's do some work.

Robdee

PS Indicator support. Please use the private message system for support questions. Do not post support questions in this thread. Thanks.

PPS Removing rubbish posts. As moderator of this thread I will remove posts that I consider to be irrelevant or just basically rubbish. I know in my naive enthusiasm I've posted rubbish in some threads in the past. I know how it happens. This is a not a personal attack, it is just keeping the place tidy as a learning environment.

NEWS FLASH
123PatternsV7 beta testing now in progress post #235
(14 Dec 2011)


Forexcube Nov 16, 2011 12:35pm | Post# 2

Hi robdee
Thank you for the indicator.
I wish you success & happiness!
Best regards from Switzerland!
FXcube

zamanib Nov 16, 2011 12:52pm | Post# 3

Welcome
 
Welcome back -- long time - OK let give it a try on normal candle this time range bars was not that great trading this system.

ukcool Nov 16, 2011 1:09pm | Post# 4

Hi rob, I havent seen you around for a while where have you been.

robdee Nov 16, 2011 2:26pm | Post# 5

Using ZigZag only
 
1 Attachment(s)
123PatternsV6 uses ZigZag which comes with MT4.

To understand this use a plain chart, add ZigZag only, then go to any candle and look back in time. What are the last three points made by ZigZag? Label those points 1 2 3. When price continues from point 3 to go past point 2 then we have a break. Some people call this 1-2-3-break.

Click to Enlarge

Name: eurusd-2011-11-16-zigzag.gif
Size: 24 KB

Ideally the move from point 1 to point 2 should be more pips than the move from point 2 back to point 3. In other words point 3 is somewhere in the middle between point 1 and 2. I say 'ideal' because that alignment strongly suggests that 1 to 2 is an impulse move (with the trend) and 2 to 3 is a retrace move (against the trend). This provides evidence of trend direction.

In summary ZigZag filters the noise and allows us to focus consistently on just the most important high/low points. With ZigZag only we can easily observe:

 

  1. previous three price points before any particular candle in time
  2. three price points forming a 1 2 3 pattern
  3. price retracing from 2 to 3
  4. price trend continuing and breaking past 2

We also have two categories of 123 patterns. First, those patterns where 3 is ideally located in between 1 and 2. Second, those patterns where 3 is located beyond 1. Some would say this second category breaks the pattern and is therefore not a valid 123 anymore.

I prefer to call these two categories ideal patterns and distorted patterns.

Robdee

PS Something to think about - How does the 123-break pattern relate to the popular higher-high higher-low concept, is it the same thing ?


qprfc Nov 16, 2011 11:11pm | Post# 6

Robdee You are the man,thanks for the GREAT 123 indicator best i,ve come accross fit very well into my simple trading system.
KISS keep up the thread i will follow with intrest.
Regards

robdee Nov 16, 2011 11:49pm | Post# 7

Basic Setup
 
1 Attachment(s)
First I want to welcome and thank Forexcube zamanib ukcool HankT and gprfc. Your interest and support is appreciated. I like to look at FF user profiles and try to imagine what it is like to be living (and trading) in those places all over the world where you are living now.

Here in New Zealand it is spring. Gardens, lambs and calves are all growing fast right now. Gusty winds cover the country as we change seasons. I went for my 'first swim of the season' in the harbour recently. It was still pretty cold but refreshing and I am looking foward to long summer days.

It would be nice to read descriptions of other places where traders live.

Now about this indicator...

In my first few posts to this thread I am going to start simple and build up layer by layer. This will allow readers to see the foundation ideas that went into this indicator. In the last post I showed that something as simple as just dropping ZigZag on the chart will give you a lot of information.

I think it is important to actually do that. Manually insert text labels 1 2 3 break on to a chart that has ZigZag only. You will get a better feel for what the indi is trying to do. Notice those places where patterns overlap or it is hard to tell the difference between bullish and bearish patterns.

Basic Setup

For a basic setup we keep ZigZag on the chart and overlay 123PatternsV6 on top. We change the indicator settings turning off ShowAllLines ShowAllBreaks and ShowTargets. ZigZag had a default depth of 12 so we set our indicator to the same ZigZagDepth=12.

Now we can see (on top of ZigZag) the blue dots, red dots, and break arrows as below.

Click to Enlarge

Name: eurusd-2011-11-16-basic-setup.gif
Size: 20 KB

AlexM80 Nov 17, 2011 2:46am | Post# 8

Hey robdee

i can not wait to read more from you...

Udine Nov 17, 2011 2:55am | Post# 9

amazing indy
 
Good moring (at least for me it is

I see greatpotential in your indicator. Have you ever thought of giving it a sound alert when it draws an arrow ??

I will be following, very interesting

Green pips

Udine

Edit: found the 123alarm

great work

Eamonn Nov 17, 2011 4:11am | Post# 10

123 !!
 
Hi Rob

Great indicator I'm looking forward to the thread !!

simmo24 Nov 17, 2011 7:41am | Post# 11

Hi Rob

I like 123 patterns, looking forward to your continued insights with this cool indi.

porfirio Nov 17, 2011 9:37am | Post# 12

1 Attachment(s)
hi robdee

thanks ... very interesting thread

I like the zigzag

1-2-3 indicator did not know ... is very good but I study it because it is not as determined by the trend

tp? sl? ... perhaps a tsl?
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piprac Nov 17, 2011 11:56am | Post# 13

1-2-3
 
I demo'd the 1 2 3 a year or so ago and had so-so results, not enough for me to continue. The problem I found was that #3 often didn't break the #2 position or broke it just a little so that i got into a trade but then reversed. I will watch your alls progress with the indicators listed to see how this "New and Improved" version goes. Thanks for posting, p.

robdee Nov 17, 2011 2:00pm | Post# 14

When are 123 patterns useful?
 
The problem I found was that #3 often didn't break the #2 position or broke it just a little so that i got into a trade but then reversed.
Welcome piprac. I agree with you, in some situations 123 patterns are not useful. However, I also know that there are other situations where 123 patterns are useful.

That is the goal of this thread as in post #1

"My goal for this thread is to work together on understanding 123 patterns, when are they useful, and when they are not."

In other words

 

  1. what are the strengths and weaknesses of 123 analysis
  2. what are the limitations
  3. what market conditions are best
  4. what times are best
  5. what other study do we combine with it
  6. and so on...

I will watch your alls progress with the indicators listed to see how this "New and Improved" version goes.
Just to clarify this, the indicator is not new and improved. It is the same indicator we were using a year ago.

What can become new and improved is our understanding and trading practice. To do that requires the efforts of trial, error, and tracking our progress.

Robdee

porfirio Nov 17, 2011 3:50pm | Post# 15

1 Attachment(s)
hi ... You have used a multizigzag h4? looks great
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Name: multizigzag-123..h4-d1-w1.gif
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qprfc Nov 17, 2011 7:50pm | Post# 16

Hello
The MTF zigzag indicator looks good,where can i find this,i would like to use this along with the 123 indicator.
Robdee made my first pips using the 123 setup taking it slowly as this is the first time i have used this strategy.
Regards

robdee Nov 17, 2011 11:32pm | Post# 17

Basic Setup Sell Zones
 
1 Attachment(s)
Welcome AlexM80 Udine Eamonn simmo24 and porfiro, good to have your feedback. Looks like I better carry on with more posts

In the last post I described the basic setup using ZigZag and my indicator. With the basic setup only ideal 123 patterns are shown with red dots for bearish and blue dots for bullish. Distorted patterns are ignored and not highlighted at all with a basic setup.

Now on to the next layer...

To the basic setup I now add sell zones. A red arrow points to the first candle to close below (2). This shows that the bears are strong enough to push the price down and close below that previous price level (2) where the bulls last showed their strength. At this point who is winning, the bulls or the bears ?

The price level where that red arrow is printed now becomes a guide for future selling interest. A sell zone then is an area of future selling interest.

I draw this with a pale green rectangle that covers the red arrow and stretches out into the future. The bears were winning at that price once before so they will remember that price. The bears will be interested in being strong at that price again to sell more lots or to defend their short positions.

The bulls will also remember that they were beaten at that level and will push up to retest the strength of the bears. If the bulls give up that fight too easily then price will drop away too fast and will not come back into that interesting sell zone. In that case I will not have a trade entry which is OK with me.

Click to Enlarge

Name: eurusd-2011-11-16-sell-zones.gif
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For my trades I am only interested in selling when price comes into the sell zone. If I liked I could enter immediately after the break. I could grab some pips that way. However the reason I do not do this is I am usually not watching the chart when that happens (so I miss my chance) and I also like to see some bullish strength (pushing price back up into the sell zone) so I have the bulls enthusiastically filling my sell limit orders (as a result of their buying activity).

Does that make sense ?

Robdee

Ezzy Nov 18, 2011 1:35am | Post# 18

Hi Robdee

Great to see you around again.

I will be following your thread with interest, hoping to learn and share where I can.

Cheers

porfirio Nov 18, 2011 5:28am | Post# 19

1 Attachment(s)
hi qprfc

sorry for the delay in my reply ... I was sleeping.

here you have it ...
MultiZigZag.mq4

JulesvH Nov 18, 2011 6:54am | Post# 20

Interesting.
Subscribed and downloaded the indy to get familiar with it.

porfirio Nov 18, 2011 7:15am | Post# 21

1 Attachment(s)
hi JULES

indicators is a SIMPLE ZIGZAG
Click to Enlarge

Name: zz.-.-..gif
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porfirio Nov 18, 2011 7:20am | Post# 22

1 Attachment(s)
I put the multizigzag if anyone wants to investigate a little operation
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Name: zz.-.-..gif.-.gif
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porfirio Nov 18, 2011 7:40am | Post# 23

1 Attachment(s)
the zigzag has great potential ... have to play with the
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porfirio Nov 18, 2011 8:49am | Post# 24

1 Attachment(s)
Hi Friends ...
AS SUCH ... THE ZIGZAG has great potential

FILTER .... CCI 200
Click to Enlarge

Name: filter zz-cci200.gif
Size: 35 KB

cmac0351 Nov 18, 2011 1:22pm | Post# 25

I will be following this thread with interest. Thank you for the 123 indi!

porfirio Nov 18, 2011 4:30pm | Post# 26

if it is a good indicator ...but... if anyone knows how to determine the trend .... I do not like to wear something that I do not understand

robdee Nov 19, 2011 1:53am | Post# 27

123Alarms add-on for 123Patterns
 
A few people have been asking about audio alerts for 123PatternsV6.

There is an add-on called 123Alarms. It can be downloaded from the old thread.

Download 123Alarms

Please note that it does not require rangebars. Just 123PatternsV6 on normal charts will give 123Alarms everything it needs.

The chart must be in the active window (active MT4 profile) for processing to occur and the alarm to activate. If you switch away to a different MT4 profile then the alarm will be mute because that chart is not being processed any more.

You can make your own .WAV sound files to be used with the alarm.

Hope that all makes sense ?

Robdee

PS Please take a moment to vote use the Rating: dropdown (all the way at the top of the thread reader on the right hand side). This is a simple way for readers to participate - Thanks.

davidtrader Nov 19, 2011 4:53am | Post# 28

Hi Robdee
thanks for good thread
question: how we draw(or select) sell zone?

robdee Nov 19, 2011 1:13pm | Post# 29

Drawing sell zones
 
2 Attachment(s)
how we draw(or select) sell zone?
Welcome davidtrader, thanks for your question.

A sell zone is not an exact price line. Rather it is a broad 'zone' or range of prices roughly 10 pips high. I like to think of it as colouring with a crayon. It is not a precise to the pip area, it is a 'zone'.

Use the MT4 menu Insert.Shapes.Rectangle. Start drawing just above and to the left of a red arrow, drag the rectangle down to cover all of the arrow and across to the right to form a long thin horizonal rectangle.

I set the rectangle properties as below

Name:  sellzone-rectangle-properties.gif
Views: 19633
Size:  19 KB

Here is an example of three sell zones at the end of October.

Click to Enlarge

Name: eurusd-2011-10-31-sell-zones.gif
Size: 20 KB

The most successful sell zones will occur after the bulls have had a successful run up to a new high. They still think they are winning even after the first bearish 123-break. That is when they (the overconfident bulls) are going to push back into the sell zone filling my sell limit orders.

Robdee

PS Support questions about my custom indicators and EAs should not be posted in this thread. Please contact me by FF private message or email.

spyderman Nov 19, 2011 4:59pm | Post# 30

Count me in
 
Subscribed and interested to see where this thread goes.


billbss Nov 20, 2011 8:57am | Post# 31

Hey Guys,

Robdee has requested that no custom indicators or range bars be discussed in this thread.

Let's respect his wishes. This looks like an interesting system and I'd like to see more of it.

robdee Nov 20, 2011 1:42pm | Post# 32

Summary of Terms (so far)
 
Thanks JulesvH cmac0351 spyderman and billbss for your comments. I see your experience and welcome your input.

Also welcome two junior members xalson and davidtrader. Your very first post was made in this thread. Looks like something here motivated you to join FF and make a post - great

At this early stage of the thread I am describing the basic ideas that went into the indicator when we were developing it a year ago. These concepts should appear in most any discussion of 123 patterns. Different authors will use different terms to describe what is essentially the same price behaviour and the same analysis. This can be confusing.

What I have been trying to do is use clear and consistent terms that then provide a foundation for our further discussion. If you use the same terms that I do then confusion (in this thread) will be avoided.

Summary of Terms
Terms used in the first four main posts are underlined below.

Using Zigzag only post #5

 

  1. 123 patterns are an important feature of price action
  2. Looking back in time you will always see three previous price points
  3. Zigzag draws our attention to the most important price points
  4. Charts with Zigzag alone provide a lot of information
  5. Two categories of patterns, ideal and distorted

Basic Setup post #7

 

  1. basic setup highlights ideal patterns only, not distorted patterns
  2. add 123PatternsV6 on top of Zigzag with matching depths
  3. turn off ShowAllLines ShowAllBreaks and ShowTargets
  4. red dots and arrows for bearish patterns
  5. blue dots and arrows for bullish patterns

When are 123 patterns useful? post #14

 

  1. 123 patterns are not always useful
  2. 123 patterns are useful in some situations
  3. an important goal of this thread is to understand what makes the difference between successful and failed 123-break patterns

Basic Setup Sell Zones post #17

 

  1. Following a bearish 123-break pattern a decision is required about a time and a price for selling
  2. An aggressive decision sells immediately after a break (no wait)
  3. A conservative decision waits for price to retrace up into a sell zone
  4. Consistent sell zone pricing is provided by the red arrow
  5. Sell zones are interesting because they are remembered by both bears and bulls as old battle lines
  6. Sell zones are useful because they offer buying volume to fill limit orders
  7. Sell zones are not an exact price line, they are a small range of prices roughly 10 pips high

OK, that is all I can think of this morning. Have I missed anything?

Now is a good time for feedback and questions on these terms and concepts before we carry on.

Robdee


spyderman Nov 20, 2011 4:31pm | Post# 33

Now is a good time for feedback and questions on these terms and concepts before we carry on.

Robdee

Robdee,

I noticed that the sell zones are seem to be higher (on a short) then the price you would have entered on an aggressive break entry. Is that correct.

And in post #30 the 2nd sell zone is even above point #3. Will we be discussing the mechanics of the sell zone placement later?

Thanks,

robdee Nov 20, 2011 7:25pm | Post# 34

Sell Zone placement
 
Spyderman, great questions. You have found a weak area that I was unwittingy being rather too vague about. Thanks.

I noticed that the sell zones seem to be higher (on a short) then the price you would have entered on an aggressive break entry. Is that correct.
Yes that is correct. Aggressive entry prices are below 2. The red arrow points to the very first candle to close below price point 2. I see an aggressive entry as the open price of the following candle. Break candle closes, arrow has printed, market order now - no hesitation.

Conservative entries wait for price to break and then move higher into the range above 2 (and normally below 3). This is what the sell zone represents. An area of future selling interest as opposed to immediate selling interest. As the charts show, there are many situations where price action does not return into the sell zone and the conservative entry is not achieved. This can usually be explained by strong bearish pressure overwhelming the bulls.

Will we be discussing the mechanics of the sell zone placement later?
I'm going to discuss this right now because it is an area of weakness and certainly needs improving. Determining a good price level for the sell zone has been problematic. Last year I tried all sorts of ideas for the placement of the arrows (which act as a guide for the sell zones).

123PatternsV6 prints arrows using the following calculation.

SellArrow[shift] = High[shift]+(High[shift]-Low[shift])/3;

In other words look at the breaking candle. Calculate the range (size) of that candle (range=high-low). Divide that range by 3. Add that value to the high and print the arrow at that price.

In effect the arrows are printed above the breaking candle at a variable distance from the candle (1/3 of the candle height).

If the candle size is large then arrow will be further above. If the candle size is small the arrow will be lower. In other words if there is a lot of momentum we expect a stronger pullback. Assuming that the bulls don't give up the fight.

Blue arrows are the mirror image of this. They are printed below the breaking candle at a variable distance (1/3 of the candle height).

Why am I so interested in sell zones? The reason is I can see a time when I'm going to be searching for liquidity. If I can find a place where the bulls are overconfident and buying into my sell orders for significant periods of time then liquidity will not become a limiting factor.

OK, any more questions?

Robdee

Note: I have been out on my own with this sell zone thing because most participants in the old thread (last year) were using aggressive entries.

davidtrader Nov 21, 2011 3:09am | Post# 35

1 Attachment(s)
Hi Robdee
Is these entries in pic ok?
Where is stop loss in both entries?
Click to Enlarge

Name: eurusd h1.gif
Size: 15 KB

robdee Nov 21, 2011 4:11am | Post# 36

Stop Losses - What I do
 
1 Attachment(s)
Is these entries in pic ok?
Where is stop loss in both entries?
Davidtrader, good to see your chart posting. What I notice right away is your chart is one hour (H1) timeframe. That means the distance between 123 price points is huge, like 100+ pips. Which means in theory that appropriate stops are going to be pretty large too, so as to fit the pattern size of H1.

As a learning exercise I suggest using 5 min timeframe. You'll get a lot more practice because patterns come along more frequently. Plus you will not need more than 20 pip stops operating at that level.

See below my labels on the EURUSD H1 pattern that you posted.

Click to Enlarge

Name: eurusd-2011-11-21-h1-basic.gif
Size: 20 KB

Stop Losses - What I do

Stop losses are best left to personal preference. Your stop management needs to match your own trading personality. However, I will explain what I do.

My approach to stops is to take me out fast if I am wrong. So I simply use a 20 pip stop in all situations. If I haven't selected the right entry price (within a 20 pip margin of error) then I want to be taken out quickly. This clears my mind of the bad trade and allows me to re-evaluate without the emotional pressure of being stuck in a losing position.

Often I will chase an entry down getting taken out at 20 pip intervals until I find a better entry that holds. Although this cuts into profits pretty deeply it is the way I like to operate. That is, keep pruning out bad trades until I find a place where I can "buy and hold" for 100 pips.

Now there are a couple of other things I do with stops. As soon as price moves to +20 above my entry price I move the stop from -20 to breakeven. This means that if price bounces back against me I lose nothing.

When price moves to +50 above my entry price I start trailing pip for pip. This means my stop keeps moving up (trailing) 50 pips below the most recent high. This means if my TP target is not reached I'll still bank some pips.

Hope that helps. Would be good if experienced traders share their own stop loss rules in this thread.

Robdee

Neksus Nov 21, 2011 10:58am | Post# 37

perhaps someone will be able to add audio and text signals the appearance of the arrows?

Joeyd Nov 21, 2011 1:06pm | Post# 38

Thanks for starting this no-frills thread. Amazing little indicator that cuts through the "fog" of trading.

robdee Nov 21, 2011 1:26pm | Post# 39

Link to 123Alarms
 
perhaps someone will be able to add audio and text signals the appearance of the arrows?
Welcome Neksus, great minds think alike

Link to 123Alarms (add on for 123PatternsV6)

davidtrader Nov 21, 2011 3:36pm | Post# 40

Hi Robdee and every body
123 alarm indicated for zigzag depth=1 set uo not for zigzag depth=12
how i can change 123 alarm indicator set up for zigzag depth=12?


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