What's wrong with 123 Pattern | Forex Factory

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What's wrong with 123 Pattern

  • #1
  • First Post: Jul 25, 2008 3:22pm Jul 25, 2008 3:22pm
Hello Everybody,

I really didn't want to start a thread, but as it goes, if you don't ask questions, you dont get answers. And I wouldn't want to jump into someone else's thread with an off-topic, hence this new thread?

It is a basic question about the popular 123 pattern/system.

What is wrong with the system?

It is talked about in almost any introductory trading discussion and it is every where on the web , but I hardly hear people talk about actually trading the system; especially here at FF.

Is it that it is not a profitable system? or it's just too basic/simple for the experts to trade?

Personally, I tried this system some time ago and it seemed to make sense then, but as usual, we always seem to believe the next new system is better than our current one(especially after some losses); That was how I drifted from it totally. Sometimes I want to come back to it, but I 've heard negative comments about it, and people saying you cannot rely on it long term.

But over time, I have noticed that the pattern is always present on my charts, and could have helped me avoid bad trades and given me good entries for the profitable ones. But due to the (mis?)conceptions ;I have deliberately refused taking it seriously.

So I need to hear what people have against (or for)this system.

If it has been discussed else where on FF, could someone kindly direct me to the thread.

I am going to post some charts to highlight what I see.


N.B Pls constructive criticism only; afterall we are not arguing here, But just trying to point out the good and the bad of the system for learners like us.
  • #2
  • Jul 25, 2008 3:26pm Jul 25, 2008 3:26pm
Here is 15m chart showing the pattern
Attached Image (click to enlarge)
Click to Enlarge Name: EURJPY1.JPG Size: 85 KB
  • #3
  • Jul 25, 2008 3:33pm Jul 25, 2008 3:33pm
Here is another chart.

Though they are selected scenarios, but that's same with almost every sytem, U don't get the perfect setup every day.

This is purely PA
Attached Image (click to enlarge)
Click to Enlarge Name: EURJPY2.JPG Size: 80 KB
  • #4
  • Jul 25, 2008 3:44pm Jul 25, 2008 3:44pm
I think this would have helped us avoid agonizing situations, where sometimes after entering a trade we start doubting the rationale behind taking the position
Attached Image (click to enlarge)
Click to Enlarge Name: EURJPY3.JPG Size: 86 KB
  • #5
  • Jul 25, 2008 3:55pm Jul 25, 2008 3:55pm
It's not a bad system. It's certainly not wrong. However, it's more of an intro than a professional system. It teaches you how to think, but not necessarily trade.

Ideas such as support and resistance are, in my mind, an evolution of the 1-2-3 method. If you look at your charts for S&R instead of 1-2-3, i see many more successes where 1-2-3 has failed.

1-2-3 works in trending markets...S&R works in ranging and trending...
  • #6
  • Jul 25, 2008 4:46pm Jul 25, 2008 4:46pm
Quote
It is a basic question about the popular 123 pattern/system.

Because it's one of those "works in hindsight" type systems. It looks great on a chart, but when you're looking at a 1 and a 2, you have no clue when or if a 3 is going to occur the way you think it will.

It's also way too discretionary, IMO, if you put 10 traders in a room and had them pick out the patterns you'd probably get a different set for every trader. Makes it a hard system to get right, puts way too much "feeling" on things.

IMO the basic concepts tho are just basic S&R and dow theory (higher lows, lower highs, whatever). From that you can figure out the rest.
  • #7
  • Jul 25, 2008 6:57pm Jul 25, 2008 6:57pm
Quoting Rabid
if you put 10 traders in a room and had them pick out the patterns you'd probably get a different set for every trader.
And then they end up getting into a fist fight.
  • #8
  • Jul 25, 2008 7:42pm Jul 25, 2008 7:42pm
Haha, wow, what traders groups do you attend?
  • #9
  • Jul 25, 2008 11:09pm Jul 25, 2008 11:09pm
Outlaw forex gang. We're called the "Hell's Traders". Born to go Long is our theme song. We recently had a run-in with a rival gang called the "50th Street Quants" and beat them all to within a pip of their major support lines.

Anyway, here's a pic of us cruising through town on our choppers. The locals were all in tears as they pointed and quivered in abject terror...I figure we must have had them scared out of their minds.
Attached Image
  • #10
  • Jul 26, 2008 12:25am Jul 26, 2008 12:25am
Quoting Rabid
Because it's one of those "works in hindsight" type systems. It looks great on a chart, but when you're looking at a 1 and a 2, you have no clue when or if a 3 is going to occur the way you think it will.

It's also way too discretionary,
Rabid, I quite agree with U that it "works in hindsight" but I think that's common with all systems; even the most successful ones( in trading, the rearview mirror is clearer than the windshield).

But I don't think it's too discretionary, the steps are actually laid out.
a 1 is formed, a 2 follows, U trade if and only if a 3 is formed. If a 3 is formed, execute, if not, abort.

If we were sure of when or how a 3 (or any other trading pattern) will occur, then I think we've found the holy grail. No body knows what the market is going to do next, we just try to position ourselves strategically and wait for it to come to us , instead of chasing it up and down.
  • #11
  • Jul 26, 2008 12:41am Jul 26, 2008 12:41am
Quoting howdytest
It's not a bad system. It's certainly not wrong. However, it's more of an intro than a professional system. It teaches you how to think, but not necessarily trade.

Ideas such as support and resistance are, in my mind, an evolution of the 1-2-3 method. If you look at your charts for S&R instead of 1-2-3, i see many more successes where 1-2-3 has failed.

1-2-3 works in trending markets...S&R works in ranging and trending...
Yes, U are right, it gives us a bird's eyeview of the market and sometimes confirms if we are going the right way
  • #12
  • Jul 26, 2008 12:13pm Jul 26, 2008 12:13pm
Quoting howdytest
It's not a bad system. It's certainly not wrong. However, it's more of an intro than a professional system. It teaches you how to think, but not necessarily trade.

Ideas such as support and resistance are, in my mind, an evolution of the 1-2-3 method. If you look at your charts for S&R instead of 1-2-3, i see many more successes where 1-2-3 has failed.

1-2-3 works in trending markets...S&R works in ranging and trending...
Totally agree with you mate.

I remember trading the 1-2-3 pattern when I first started out in FX. I tested it for a few weeks on demo, and got mixed results, so I just left it. On it's own it's nothing special, it's more of an aid, if you choose to use it.
  • #13
  • Jul 26, 2008 12:32pm Jul 26, 2008 12:32pm
Quote
Anyway, here's a pic of us cruising through town on our choppers. The locals were all in tears as they pointed and quivered in abject terror...I figure we must have had them scared out of their minds.

Dang, terrifying! Born to be wild.

Quote
But I don't think it's too discretionary, the steps are actually laid out. a 1 is formed, a 2 follows, U trade if and only if a 3 is formed. If a 3 is formed, execute, if not, abort.

Right, but who's to say which is the 1st, which is the 2nd which is the 3rd. If you have a series of peaks and troughs, which is which? Where does the pattern start and stop? I have the same concern w/ elliot waves too, how can you know which wave is which until it's all said and done? But whatever works for you, works for you. I can just say why I, personally, don't use patterns like that... that's all. I prefer micro patterns or bar sets.
  • #14
  • Jul 26, 2008 1:31pm Jul 26, 2008 1:31pm
Because people today have a problem counting
  • #15
  • Jul 26, 2008 2:00pm Jul 26, 2008 2:00pm
nothing wrong with it
I use it in Stocks, forex and any chat in the world

and my notes are
it's best on the daily and without gaps, it will generate little no of losses
but with intraday the number of false signals increase because the noise

The only problem is: it's a reversal pattern and that's mean you always wait for the current trend to reverse and catch the new trend from the beginning and after two or three false tries and you begin to lose your confident in it while the current trend continue

so you cant use it alone, you MUST combine it with continuation pattern like Ross Hook to fill the gap of waiting the reversal and go also with the current trend (search the forum about it, we have many discussion about this topic or read Joe Ross books)

the RH in uptrend is a bar that high than the prior and the next bar

you must love the continuation patterns more than the reversal to be with the trend and don't let your trades always top/bottom picking

as I said nothing wrong and I used it everyday in many markets with great success but the problem in the people is they don't simple systems, they love the complicated multi-indicator systems

This is the point

but you need to practice it a little more, the 123 pattern are two 123 high and 123 low
123 high must have prior uptrend to REVERSE it and vice versa for the 123 Low

try to count it bar by bar and put signs on the chart and dont use the zig zig indicator to save yourself from congestion
when your count ends with four closes on the range of the fifth bar then take break cuz you're in congestion and watch only the breakout from this congestion
and only use stop orders



you can found many examples and discussion by searching the forum
ex posts: post1, post2, post3, post4

I attached your chart with some clarification
Attached Image (click to enlarge)
Click to Enlarge Name: EURJPY1.JPG Size: 87 KB
  • #16
  • Jul 26, 2008 5:41pm Jul 26, 2008 5:41pm
Quoting benssol
nothing wrong with it
I use it in Stocks, forex and any chat in the world

and my notes are
it's best on the daily and without gaps, it will generate little no of losses
but with intraday the number of false signals increase because the noise

The only problem is: it's a reversal pattern and that's mean you always wait for the current trend to reverse and catch the new trend from the beginning and after two or three false tries and you begin to lose your confident in it while the current trend continue

so you cant use it alone, you MUST combine it with continuation pattern like Ross Hook to fill the gap of waiting the reversal and go also with the current trend (search the forum about it, we have many discussion about this topic or read Joe Ross books)

the RH in uptrend is a bar that high than the prior and the next bar

you must love the continuation patterns more than the reversal to be with the trend and don't let your trades always top/bottom picking

as I said nothing wrong and I used it everyday in many markets with great success but the problem in the people is they don't simple systems, they love the complicated multi-indicator systems

This is the point

but you need to practice it a little more, the 123 pattern are two 123 high and 123 low
123 high must have prior uptrend to REVERSE it and vice versa for the 123 Low

try to count it bar by bar and put signs on the chart and dont use the zig zig indicator to save yourself from congestion
when your count ends with four closes on the range of the fifth bar then take break cuz you're in congestion and watch only the breakout from this congestion
and only use stop orders



you can found many examples and discussion by searching the forum
ex posts: post1, post2, post3, post4

I attached your chart with some clarification


Thanks a lot Benssol,

This is the kind of objective analysis I was actually looking forward to.
Coming from an experienced trader who has actually tried the system , seen the pitfalls and made adjustments to get a winning edge.

Like U rightly said, people would rather accept complicated systems with bundles of custom indicators and ignore the very simple price patterns that seem to stare at them in the face everyday.

Smaller time frames can really give many false signals resulting in series of losses; I think that's why people seem to have negative comments about it.

In the past ,I have considered it on the daillies, but because of the large stoploss it might require I had to drop lower.

I 've read Joe Ross' book but I just ignored its message for obvious reasons. Well I'll go and take a second look and consider your other suggestions and see if I can develop an edge too.

More useful contributions or links/materials on this will be highly appreciated

One need to find out what works for him and work on it
  • #17
  • Mar 19, 2009 7:48pm Mar 19, 2009 7:48pm
Test
Attached File(s)
File Type: txt EMA 25 BrOut.txt   30 KB | 1,263 downloads
  • #18
  • Aug 21, 2010 7:17pm Aug 21, 2010 7:17pm
The 1-2-3 method is a legitimate concept. No method works all the time and some people cannot work any method anytime.
Abide by the basic rules and it will work.
  • #19
  • Aug 22, 2010 3:18am Aug 22, 2010 3:18am
Quoting benssol
nothing wrong with it
I use it in Stocks, forex and any chat in the world

and my notes are
it's best on the daily and without gaps, it will generate little no of losses
but with intraday the number of false signals increase because the noise

The only problem is: it's a reversal pattern and that's mean you always wait for the current trend to reverse and catch the new trend from the beginning and after two or three false tries and you begin to lose your confident in it while the current trend continue

so you cant use it alone, you MUST combine...
Nice post Benssol, I am a little late to the party but will head over and soak up the rest of your chart observation thread, some very useful stuff over there. Thank you.
  • #20
  • Mar 7, 2015 7:32am Mar 7, 2015 7:32am
123 is a great pattern to look for but make sure you are trading it, like anything else in an active market! I only trade the first few hours of the asian market (if its moving nicely) and London into the first hour of new york. New York gets too choppy after about an hour.
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