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.
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.
Thank you for the indicator.
I wish you success & happiness!
Best regards from Switzerland!
Welcome back -- long time - OK let give it a try on normal candle this time range bars was not that great trading this system.
Hi rob, I havent seen you around for a while where have you been.
Using ZigZag only
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.
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:
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.
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.
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.
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.
i can not wait to read more from you...
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
Edit: found the 123alarm
Great indicator I'm looking forward to the thread !!
I like 123 patterns, looking forward to your continued insights with this cool indi.
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.
When are 123 patterns 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
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.
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.
Basic Setup Sell Zones
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.
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 ?
Great to see you around again.
I will be following your thread with interest, hoping to learn and share where I can.
sorry for the delay in my reply ... I was sleeping.
here you have it ...
Subscribed and downloaded the indy to get familiar with it.
I will be following this thread with interest. Thank you for the 123 indi!
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
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.
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 ?
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.
thanks for good thread
question: how we draw(or select) sell zone?
Drawing sell zones
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
Here is an example of three sell zones at the end of October.
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.
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.
Count me in
Subscribed and interested to see where this thread goes.
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.
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
Basic Setup post #7
When are 123 patterns useful? post #14
Basic Setup Sell Zones post #17
OK, that is all I can think of this morning. Have I missed anything?
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?
Sell Zone placement
Spyderman, great questions. You have found a weak area that I was unwittingy being rather too vague about. Thanks.
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.
123PatternsV6 prints arrows using the following calculation.
SellArrow[shift] = High[shift]+(High[shift]-Low[shift])/3;
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?
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.
Stop Losses - What I do
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.
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.
perhaps someone will be able to add audio and text signals the appearance of the arrows?
Thanks for starting this no-frills thread. Amazing little indicator that cuts through the "fog" of trading.
Link to 123Alarms
Link to 123Alarms (add on for 123PatternsV6)
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?
© Forex Factory