How to use the 123 strategy effectively

Well I reset the reversal entry a couple of times and ultimately got filled in a setup that wasn't exactly textbook. However I was able to close it out profitably.

having good success with this system I must admit here is my latest daily signal up 470 pips

Then we have the 1hour which im still looking to long but no valid 123 count yet..all I keep doing is moving the 1 count down

And the 5min with 1 signal today so far

P

we now have a 12 in place on the 5min...

we need the low to hit the 61.8% line with more than 1 candle in between the 2 and 3 count for it to be valid ..we then take the break of the 2 level with a long,,TP is set at the 200 level which is just the distance from 1 to 2 projected forward

Our SL is at 1 so RR is 1:1

P

we now have 3

there is more than 1 candle between 2 and 3 in this case 3 candles and its hit the 61.8% level

The count will be valid unless the low goes below the low at 1 in which case we start the count again

Tripper point is 1 pip above the 2 level

Paulus, thanks for sharing your ideas on this pattern, very useful. edit: now in on the EU long.
Edit: 15:27 and out, for a useful +24.9

hi

Its a powerful pattern but you need rules to trade it effectively

I got the 25 pips also..now on count 1 for a short

P

1 and 2 in place for the short just had the pull back to 61.8% and the gap between 2 and potential 3 is more than 1 candle

We go short 1 pip below 2 as long as the high of 1 is not broken ...

If it does we start the count to go short again

P

ok 3 was fixed in place as the high did not go higher than the high at 1

Now short from break of low at 2 TP has been labled and SL at 1

Cheers

P

Looks like you got it...congrats!

Sorry to ask this question, as I know all about checking things out for one's self, but have you backtested this, especially into summer months when price movement is sometimes not as directional and volumes tend to be less? I always tend to think that if it were this simple, everyone would be doing it, but then again I've read that the best strategies are often the simplest....I mean, an expectation of 20 pips per trade is quite good, but I've also found that sometimes a strategy works well, and then other times it does not....do not get me wrong, I'm certainly not trying to throw water on it, but I'm just wondering (to Paulus) what you think about long term viability...thanks and good trading!

Regards,

Jeff

For the life of me, I still can't figure out how to use 123. I understand it, but it just seems too inconsistent.

Hello vosterfxandy.....OK, I will try to help you out as I have a few minutes to burn here....

As I assume you know, prices move in waves, usually not straight up or down. Even though there are waves, there is still often enough a general direction in which price heads...because of this, prices makes what they call "higher highs and lower lows"....basically, the 123 method takes advantage of this price action

...on Paulus' last trade (which I assume he will post a chart with his victory!), he (assuming he is a he!) has found some prices that stand out from the rest...the number one shows a place where the price has reached a recent high point (the last time it was there was seven hours ago)...then number two shows a recent low point....the hope is that point three does not reach above point one again...this is a signal that the price will be going down! To confirm this signal, Paulus waits for the price to cross the price threshold of point two...he then expects the price to continue downward to the same amount of price difference as points one to two (roughly 40 pips)...

I hope this helps....it is just a matter of price momentum and is somewhat "following the herd", but hey, if it works who cares!

The only thing I still wonder about is letting it run all the way to the "100%" level....if the percentage of correctness is at least 75%, I wonder if it might be better to take a 2:1 reward/risk ratio, but I'm not certain of it.

Regards,

Jeff

3rd TP hit so not a bad walk and talk through

P

Paulus,

Great that you have the filter using Fib. I wonder there would have been 2 other valid trades (I highlight in red) on the chart you posted. May I ask why you didn't take them?

Hi Sea

I always trade counter trend with 123 not with the trend..this i find cuts down on the false signal so my trading will always be long short long short etc or short long short long etc

If I get the trade right then Im in at the strt of a potential new trend..dont forget if we are trending up then we need a high ( 1) a low (2) and then a lower high ( 3) the buyers cannot force the new high at 3 so it stalls...if the selling power is strong it breaks 2 and all the longs no want short and thats where we go in.

So the 1st answer is I never take 2 longs back to back..also if you look at the chart from the hi of 2 to the lo of 3 there is only 1 candle in the case of the 1st signal no candle..

I must have at least 2 candles between counts 1 to 2 and 2 to 3 again it cuts out loads of false signals.

these are my rules and they have been posted earleir I will try and find them

Hope that helps

P

1 count is in

grey box is my no trade zone its just the Asian session

P

1 hour triggered from our count yest 1pip above the 2 count

On the 1hour we trade 24 hour apart from our sleep time

TP is the line at the yellow box

daily still looks good..it needs to rally perhaps today ready for punch down again 'perhaps'

P

No.3 nearly too high but still a valid setup I believe?

...i've been trading 123s for a while and i've taken this EU 5M short (and EJ), however, I think Paulus would say that these do not qualify as there are not 2 candles between 1 and 2...i may be wrong but that's my understanding...Paulus?

edit: in fact EJ (5M) has just printed a confirmed 123 short based on Paulus' definition...and is now on the approach to the test/break of swing 2.

Yeah you could be right, Had my chart zoomed out a bit far and counted the 2 bear candles as the 2 required. Could be another short setting up now.