1 2 3 Strategy explained

Hello, i'm going to share with you the strategy i mainly use for my trading entries and exits.

It's the old 1-2-3 strategy, everytime price move from A to B, there is always a good opportunity to enter in the market with a good R:R, and a huge probability of success.

I havn't created nothing new, the way market move is what it is from when market started exist, and will be like this untill they will stop existing.



The strategy
The idea is the following:

http://warnsoft.altervista.org/imgs/0.gif


Let's start looking to some charts of eurusd now:

http://warnsoft.altervista.org/imgs/a.gif
http://warnsoft.altervista.org/imgs/b.gif

And now a pattern inside another pattern:
http://warnsoft.altervista.org/imgs/c.gif

And now, all together:
http://warnsoft.altervista.org/imgs/1.gif


More will come..

Another chart, pattern inside pattern (GU)

http://warnsoft.altervista.org/imgs/2.gif

And now.. some patterns happening NOW, next post

Here we go:

http://warnsoft.altervista.org/imgs/4.gif

(this is not a trade call or any raccomandation)

Do you watch a mainly trend? Daily, weekly?

Actually, the 1-2-3 pattern can be seen on every timeframe, every market.

It can be a perfect entry, but it's not different from any other entry method.

This pattern it's just the "tip of the iceberg".

Of course, the pattern present itself on every turning point, but what we have to do to use it profitably is think in terms of probabilities.

The first and most safe way of trade, is just avoid to try picking bottoms in downtrends and tops in uptrend, ergo Go with the flow, with the trend.


Here an image:

http://warnsoft.altervista.org/imgs/5.gif

As we see in this image, price is going lower and lower, and the 1-2-3 buy patterns never reach the target.
The more safe way, is to trade this patterns with the trend, and trade them when price is in retrace-mode (expecting a trend resume).
This image even if hypotetical show how price move during a trend.
We can see in this image that price didn't reach the "buy" targets for 2 times, usually in the real market this "target" failure happen no more then 2-3 consecutive times. However, we are safe if we avoid trade countertrend.

We will cover the counter-trend subject in future, when and why take countertrend trades.

I'm going to post more example and go deeper and deeper in the subject, but what i'm going to do is do it slowly, to avoid confusion.
The subject is very complex and the amount of informations is huge, so we better go slowly.



P.s.
Market has opened, the usdchf pattern was a good one:


http://warnsoft.altervista.org/imgs/4a.gif

Here another image of a current 1-2-3 pattern entry, this looks promising.

I'm late on the entry, and the RR ratio is not soo good, however let's see how it develop


http://warnsoft.altervista.org/imgs/6.gif
Update: this trade is not open anymore (+50), my exposure was big and was not suitable for a long-term trade.

Hello, thanks for your question.

Basically, the market have a fractal geometry, this mean trends inside trends inside trends.

Now, knowing this, all we need to look is the trend on 2 (or even 3) fractals.

Of course for now, to keep the things as simple as possible, we can look at different timeframes to understand the fractal geometry.

This mean, if we are going to take a trade on a 5min chart, all we need to do is look the trend of 15min (usually correspond to the higher fractal level of 5min chart), and at 30m for security.

As example, if we spot a good 1-2-3 sell pattern on 5min chart, we have to be sure that the 15min chart is in downtrend.
For security reasons, we can look at 30min chart to be sure that it is not in uptrend (and maybe 15min chart is doing a 1-2-3 buy pattern), that's why i say 2 fractal levels, and give a look to the 3° one to be sure.

Then, if we are going to take a trade on 5min chart we really don't care about the weekly chart or the daily one, every entry have a stoploss and a target point, so until we follow them all we need is 2-3 fractal levels.

An interesting situation would be when we have for example a sell signal on the 1° fractal level, knowing that the second fractal level is not in downtrend BUT currently forming a 1-2-3 sell pattern too, and where the 3° fractal level is in fact in downtrend. In those situations we can take an entry even if the next fractal level is countertrend, knowing that the target of the first trade will be the trigger for the second one, in situations like this the RiskReward ratio is very huge (like 1:10).

What i mean is, look at very bigger trends is not necessary, but sometime can give very good advantages.

However, for now let's concentrate on the classic pattern:

Trend
Retrace (1-2-3)
Trigger (point 2 breakout)
Trend resume (Target)

The exit strategy too is important, sometime it's a good idea to let the profits run, some other time is very important to take the profits at the target point and exit from the market.

I'll cover this subject in the next days, for now let's concentrate on the entry-part of the strategy.

It's time to sleep for me now, thanks again for your question!

Thanks Tunera

All best
x

thanks for sharing, simple and effective this is what I like the most, cheers

Simple and yet so very effective my friend.

Good luck, not exactly miles away from how I trade.

Can check divergence for more confirm?

Here is how i do it I trade 1.2.3 break all the time
I use the 20 rsi to confirm
great thread!!





teb

Hello, thank you everybody for your interest and your messages.

Well, of course we can use divergence as confirmation, however i'm very sceptical about them.
Some time a divergence mean that the trend is loosing strenght and a reversal is imminent, some other times a divergence mean that the real move, the big one, is coming soon.

I just tend to not use indicators, even if i have to can be a great help!

I'm posting a chart about when countertrend trades can be good trades.

http://warnsoft.altervista.org/imgs/7a.gif

Basically, as we can see the overall trend was down, and selling on 1-2-3sell pattern in retraces was giving us good profit.

However, now during a retrace, the 1-2-3 sell pattern didn't work as expected.
In this case, we continue taking 1-2-3 sell pattern (it's a little bit more riskious when the first one fail, it means the trend is not soo strong anymore, so a resume or a reverse is both possible).

When this happen, our target have to be modified as show on image.
At this point, when price reach our 1-2-3 sell target, market will be on a situation of decision, resume completly the old trend (down in this example), or reverse it completly for this fractal.
In the image, price fail the 1-2-3 sell patern for 2 consecutive times, and when finally it work out and reach the target on the third try, price found support on the new target and reverse definitively, creating a uptrend.

This kind of trades give the best R:R ratio (because we buy at the start of the 3° elliot wave, the more powerful of a trend).
It's important when price reach a target after some pattern fail, to put the stop at b/e or to take the profits (up to you), anyway take seriously in consideration the idea that the trend is really compromised and take actions according to that fact.


Now, a real example of the above:
We are talking about eurusd, 15min timeframe, now.

http://warnsoft.altervista.org/imgs/7.gif

As you can see i'm entered short after the second 2-point break, when (and if??) price will reach the new target at 1.2774 area, we can expect those two scenarios:

A) price drop to the initial target, the low of last week.
B) price reverse and come back to break the high of today.

I strongly discourage to let trades opened even when the pattern fail, i'm doing it because i'm not perfect and sometime take some risks too.
Usually price have to find a good support before reverse a trend, as show in my image (hypotetical situation), that's why i'm still on my sell trade.
The word "Usually" is not "Always", that's why i strongly discourage to do like i do, market follow his own rules usually, but sometime it just don't care about them.

Ok

this is really "M" & "W" system
not 1.2.3 breaks system

as you have the 1 and 3 in the wrong place.

cheers

teb

1 2 3 4(break ) is like this



the "3" should be between the "1" and the "2"

TEB

I've just made an image about the trend reverse i was writing above:

http://warnsoft.altervista.org/imgs/7b.gif

Eheh, whoops maybe i've misunderstood something..
My way of trade is definitively not the "classic" 1-2-3 system, i apologize =)

This System is great but its called "w" and "W"
which is a strong kin to double tops & the double bottoms
and the way you have it there is the best way to do it!!!

great ststem

teb

Yes i totally agree with you, i'll try to change the thread title, however i'm very happy to see that there are people that appreciate it, actually i find very useful to write about my system, it let you go deeper and deeper into the subject, i mean i'm actually learning something too while posting on this thread.
Everybody should write down some pages about his/her own system, and i also wish to have some new idea or improvement from the FF comunity, i'm pretty sure it will happen!

Wish you a great day