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How to use the 123 strategy effectively

  • #121
  • Edited 7:04am Dec 2, 2010 6:12am | Edited 7:04am
...i've been finding the 138.2 fib extensions from the 1 to 2 swing are respected more often than not from these 5min set-ups, so i've taken half off there and moved stops to breakeven...i guess this decreases the chance of price reaching the 1:1 target before being stopped out.

edit: 12:49 - hasn't reached 1:1 tgt yet, but i'm out with half stake taken off around 12 pips, the remainder exited at breakeven...GU is developing a long on the 5M now...edit: GU long now void.

I'd be v interested in what the more experienced guys think about this kind of trade management on the 5min?
  • #122
  • Dec 2, 2010 8:18am Dec 2, 2010 8:18am
Quoting sidefx
...i've been finding the 138.2 fib extensions from the 1 to 2 swing are respected more often than not from these 5min set-ups, so i've taken half off there and moved stops to breakeven...i guess this decreases the chance of price reaching the 1:1 target before being stopped out.

edit: 12:49 - hasn't reached 1:1 tgt yet, but i'm out with half stake taken off around 12 pips, the remainder exited at breakeven...GU is developing a long on the 5M now...edit: GU long now void.

I'd be v interested in what the more experienced guys think about this...
When i 1st started this I set my fib projections to 100 200 300 400 etc etc

For a short when price hit 200 bring stop to 100 when price hits 300 bring price to 200 etc etc

This is letting your profits run..which may be fine on daily trades but on 5min we still get allot of noise and whip saw..

I seem to make more money closing the whole lot out at my static TP rather than closing half etc etc

Also around holiday times..summer Christmas etc volatility is down so long trends seem to happen less.

Today 1st trade is a classic example Im out with 38 pips if you eneter on the riskier advanced entry you would of got 44 pips

But using the fibs of 200 300 400 etc with the price at 300 as per the chart your sliding SL would be at 200 if the price reaches 400 then move your sl to 300 etc etc

the only problem with this is that if price reaches 200 ( where I close) the person using sliding SL will go to break even at 100 level ( the 2 count where we enter)

Now...if price retraces they will be taken out at break even where as I am out with a profit

Cheers

P
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  • #123
  • Dec 2, 2010 8:23am Dec 2, 2010 8:23am
Quoting Paulus
When i 1st started this I set my fib projections to 100 200 300 400 etc etc

For a short when price hit 200 bring stop to 100 when price hits 300 bring price to 200 etc etc

This is letting your profits run..which may be fine on daily trades but on 5min we still get allot of noise and whip saw..

I seem to make more money closing the whole lot out at my static TP rather than closing half etc etc

Also around holiday times..summer Christmas etc volatility is down so long trends seem to happen less.

Today 1st trade is a classic example Im out...
...many thanks, Paulus, really appreciate you sharing your experience - this helps crystallise the thoughts I was having on this.

Good patience, through the ECB news etc, you mus have good nerves....i was fearful of the spikes around ECB.
  • #124
  • Dec 2, 2010 10:16am Dec 2, 2010 10:16am
...took the earlier EU 5M long, but using the traditional 123 def ie i didn't wait for more than 1 candle between 2 and 3, instead i took the fact that price had retraced to the qualifying fib retrace level (38.2 or 61.8 depending on how you interpret fib retracements ) which was also around todays pivot...i saw the supply level from earlier as a likely target, which tied in with Paulus' approach of going for 1:1, rather than scaling out. A +50 pip trade, Oanda chart showing entry and exit and MT chart showing fibs etc below....thanks again, Paulus!
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  • #125
  • Dec 2, 2010 12:37pm Dec 2, 2010 12:37pm
Quoting sidefx
...(38.2 or 61.8 depending on how you interpret fib retracements ) ...
Now I understand what sidefx speaks of....I had noticed some of Paulus' charts looked different than mine...I do believe it depends on how the drawing tool orients where zero is...

For example, below is a chart by Paulus from November 30. The zero line is based from price point "1", and the 100% line is from price point "2"

http://i13.photobucket.com/albums/a2.../1235minP1.gif

Now, below is a chart of the same time period from powerchart. Price point "2" is where the zero line is represented, and price point "1" is the 100% line:

http://i13.photobucket.com/albums/a2...c220100001.jpg

So, do be aware of your particular charting package and how it draws the fibos!

Hmm, as a side note, I noticed that candle at 0630 (by the powerchart chart) actually dipped below the original price point "2"....

Jeff
  • #126
  • Dec 3, 2010 5:29am Dec 3, 2010 5:29am
As i'm inexperienced, i've decided to only focus on EUR/USD for 5min 123 setups. I'm thinking with enough time really getting to know how the pair moves and applying good discipline (something i'm working hard on ) to take the higher probability setups, there might be enough there to achieve my financial goals....

Currently long from the earlier setup....trudging its way up atm and i hope it makes it to tgt before nfp, i'l def be exiting before the Oanda spreads widen and volatility kicks in.

Another question for the experienced guys...do you wait indefinitely despite news like nfp for trades to either hit tgt or stop-out?....or do you have a time limit?

All the best.
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  • #127
  • Edited 6:43am Dec 3, 2010 5:45am | Edited 6:43am
...if i see an opposite 123 forming against a trade, do i let the trade breathe or do i move stops up to reduce risk/ protect profit/ breakeven, whatever the case may be?...i've decided to move the stop up to breakeven now, as the trade has taken quite some time to play out thus far and it appears to be losing momentum.

edit: interestingly, daily R1 also at the target price for this 123...and price has been fiddling around the 138.2 extension of the 123 for sometime too...just a couple of observations. I've now moved the stop to just under this consolidation area, to lock in a few pips profit to feel better about it

Edit: decided to close out @3258 for +15. Too close to nfp now, for me to hold longer.
  • #128
  • Dec 3, 2010 7:01am Dec 3, 2010 7:01am
Quoting sidefx
As i'm inexperienced, i've decided to only focus on EUR/USD for 5min 123 setups. I'm thinking with enough time really getting to know how the pair moves and applying good discipline (something i'm working hard on ) to take the higher probability setups, there might be enough there to achieve my financial goals....

Currently long from the earlier setup....trudging its way up atm and i hope it makes it to tgt before nfp, i'l def be exiting before the Oanda spreads widen and volatility kicks in.

Another question for the experienced guys...do...
Hi Sidefx

I have been following this thread with some interest, I too am trying to get a real good feel for these 123 patterns.

I generally do not trade on NFP fridays...as it can be like the wild west with lots of unexpected and dramatic movement.

...but anyways.....I am very glad this thread is rolling on and I hope Paulus sticks around and continues to post his analysis.

PGPB
  • #129
  • Edited 10:17am Dec 3, 2010 9:53am | Edited 10:17am
Edit: now void.

Edit: Weekly & Monthly Pivot levels 3405-3410!
  • #130
  • Dec 3, 2010 12:09pm Dec 3, 2010 12:09pm
Hi Sorry

been busy busy busy


2 nice trades this morning for +13 and +38

1st point if im in a trade and news is coming out I stay in the trade I never close out prematurely. Over the years with any type of trading Ive done Ive never really gained or lost because of news.

if your long you only look for the short once the long has closed out

Dont swap long short long short without a TP or SL ever being hit

Once in a trade we have only 2 out comes we win we lose....we never never reverse

Cheers

P
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  • #131
  • Dec 3, 2010 12:15pm Dec 3, 2010 12:15pm
After the 2nd win I was looking for a short which is my normal sequence

The number '1' in red were potential 1 counts that were then removed due to a higher high being made

We currently have a completed count with a short hopefully being triggered at

1.3362

If you took the risky entry you would be live at A at 1.3366

cheers

P
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  • #132
  • Dec 3, 2010 12:22pm Dec 3, 2010 12:22pm
I only trade EU with this however if I was going to trade another it would prob be USDCAD as it moves totally opposite to EU

So if im looking for long on EU I should be looking for shorts on EC

latest counts for both

P
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  • #133
  • Dec 3, 2010 12:28pm Dec 3, 2010 12:28pm
Ive added the last signal for EC

As you can see as the short was triggered on EC the long on EU followed 1 hour later

P
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  • #134
  • Edited 1:08pm Dec 4, 2010 12:46pm | Edited 1:08pm
OK, I have been a little busier than I anticipated I would be this weekend so far, but I did manage to find all of what I consider 1-2-3 patterns on the Europe and US markets for October 2010...I choose October as kind of a "worst case" scenario because when one looks at October, I feel it can be readily noticed that it is a comparatively small candle, and I am *assuming* that the smaller the candle, the less the price has moved (unless there is an awful lot of churning going on!):

http://i13.photobucket.com/albums/a2...ct20100038.jpg

I have compressed all of the photos and an excel spreadsheet with the results into the ZIP file attached to this message.

I did my best to follow Paulus' rules which are:

Quote
I start looking for 123 at 7am uk time on...not before
if we are going up in the Asian session I look for a short and visa versa
I always take trend reversals not continuation of trends
If I take a short 1st thing then the rest of my trades go long short long short etc
I must have more than 1 candle in between 1 and 2 and 2 and 3
The pull back or rally from 2 to 3 must reach the 61.8% of the 1 to 2 move
My stop loss now goes 1pip below or above 1
My TP is always the distance from 1 to 2
I added a ninth rule: Enter one pip above/below the trend on an entry, exit one pip above below exit on a stop loss. Paulus has mentioned this in some other posts. Also, I did not count ANY Asia action...the start times listed in the spreadsheet are the point 1 start times...this is why there is no trade numbers 1 or 6...those had Asia start times that I removed (the photos are included in the ZIP...the photo numbers line up with the trade numbers).

Basically, the results were 18/35 (51.4% hit rate) for +202.3 pips. There was a 105 pip winner on October 15 that helps the results, but even without it, positive gains would still result.

I provide this information for discussion and reflection...my own personal opinion is that the results are not bad...I would like a higher hit rate, but I assume this is the case in months where there is more price movement (larger candles). I feel pretty good about my 1-2-3 recognition, but I have provided pics in case there is disagreement...also, one could simply dial up an Alpari UK MT4 demo and check out the info for one's self, always the best way to go!

Regards,

Jeff

P.S. Thanks to my wife for helping me with the data crunching!

P.P.S. Hmm, we had a 1-2-3 on the monthly EU as well, but it looks more now like a 2B reversal pattern would have been a possibility (2B found here http://trading-naked.com/2b-reversal.htm)...wow, that trade would take a LO-O-ONG time!
Attached File(s)
File Type: zip 123 MT Oct 2010 study.zip   3.0 MB | 793 downloads
  • #135
  • Edited 5:58am Dec 5, 2010 4:15am | Edited 5:58am
Huge amount of work there for you and your wife jeff

I appreciate the in depth history of the trades in October.

In regard to the small candle..if we have a small candle day and its whip sawing this could result in very positive 123 patterns and pips...we could on the other hand have a very large candle that just trends up all day has a 123 at the top which fails.

In an ideal world Id love to use a sliding stop loss our RR could go as far as 4;1 on any one trade giving us great returns for a 51.4% hit rate.

But heres the rub..we can do that but we will have days of zero pips..Friday for example gave me +13+38..

Using my sliding stop as outlined earlier in the thread we get 0+0 not a loss agreed but no win

doing this for last week gave us

Normal rules

+23+21.. +21+27..+35+25+24..-27..+38..+13+38 = 238

Sliding stop

+168+27 ..+0+0+38..-27 ..+38..+0+0 = 244

understandably the reason we cannot catch the trend sis noise 5min time frame although gives us 2-3 signals a day also has up down movement which takes out stop

when the 1st tp is hit and we normally close instead of bringing your SL to break even bring is to +50% of break even as the price often comes back to the 2 or break out level for a re test and there doing takes out our break even stop

For last week we get

+168+27..-17-17+38..-27-18..+38..-7+100 = +295

losers increase but gain in pips in increased with MM perhaps this is the way forward..

perhaps the SL should be at 3 not 1 as I originally traded ..

I will have to look over your screen prints and work out the figures..its all down to noise on the 5min time frame

there is an answer to this but for the life of me I havnt found it yet !

P
  • #136
  • Dec 5, 2010 6:53am Dec 5, 2010 6:53am
Quoting stljeffbb
I provide this information for discussion and reflection
P.S. Thanks to my wife for helping me with the data crunching!

!

What a fantastic job you have done here.
Of course you are following the rules to the letter.....which is great....BUT it does not allow for descretion...for instance in trade 19 there is no way I would have let that turn into a loss.....I would have at least moved my stop to break even or closed it when I saw that "hammer candle" indicating a change in direction....same thing with trade number 10....I would have moved my stop to break even or taken a small win

I have not gone through all the trades yet and of course hindsight gives people amazing trading abilities.....LOL.....but the work you have done is fantastic....thanks to you and your wife!!!!

One question I have is the rule of only taking Long after short and short after long trades.....I don't quite get the reasoning behind that.

For instance in trade number 3......price failed to break the number 2 point.....I would rename the existing number 3 a new number 1......and then the trade would have been into profit.....not sure if it would meet the other rules.

Anyways.....I really appreciate the work you have done.

Best wishes

PGPB

PS. when can we expect the analysis for November? LOL ....JUST KIDDING!!!
  • #137
  • Dec 5, 2010 9:17am Dec 5, 2010 9:17am
One question I have is the rule of only taking Long after short and short after long trades.....I don't quite get the reasoning behind that.



This just helps me stay away from the signals taken with the trend.

I only want 1 signal per trend and thats at the start...because the odds are in my favour with a 123 set up because of the higher low or lower high depending on if its a short or long.

once a trend is established no one but no one knows when it well end or fail or run out of steam...no good picking a trendy day in hind sight and saying the trend is your friend because on the 5 min time frame Ive found its better to be selective

cheers

P
  • #138
  • Dec 5, 2010 10:03am Dec 5, 2010 10:03am
Quoting Paulus
One question I have is the rule of only taking Long after short and short after long trades.....I don't quite get the reasoning behind that.



This just helps me stay away from the signals taken with the trend.

I only want 1 signal per trend and thats at the start...because the odds are in my favour with a 123 set up because of the higher low or lower high depending on if its a short or long.

once a trend is established no one but no one knows when it well end or fail or run out of steam...no good picking a trendy day in hind sight...
Hi Paulus

I will mull on this......I suppose I need to decide how I want to play it.....there are lots of 123 signals within a trend also

Anyways.....I am going to not push this idea since this thread has a very healthy participation, with your method.

Here is an image (stolen from another thread) showing some nice 123s in the direction of the trend.

PGPB
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  • #139
  • Dec 5, 2010 1:22pm Dec 5, 2010 1:22pm
Thanks very much for the replies Paulus and pgpb!

Ha ha, no I have not had time to do November...we received about four inches of snow I had to shovel, among other things...I will get to other months when I can...

Thanks very much for your money management rules Paulus....*IF* (and that is a very big if!) we know our system is positive and/or will make us money in the long run, I wonder if it would be better to go "all in" on each trade as opposed to a 5% money management scheme (where each trade is equal to 5% either way, no matter how many pips)...I am NOT recommending this, as one big loser (like say that 100 pip gainer becoming a loser) could do a lot of damage....however, if one has faith in a method, it might (and I do mean might) be the way to go...

I often go to the Random Equity Curve website and type in the numbers :

http://www.hquotes.com/tradehard/simulator.html

If one types in the results for October 2010, the applet suggest (through the Kelly Value) how much one should wager on a trade....of course use at one's own risk!

Regards,

Jeff
  • #140
  • Dec 5, 2010 2:56pm Dec 5, 2010 2:56pm
very interesting number cruncher

im now looking at an extension of 161.8 as a fib TP from entry

This should give 3;1 risk reward using count 3 as SL and 1.6: 1 RR using count 1 as SL

Of course we need to get to the TP !

But if we use MM and have a 3:1 RR its nice know that 3 losers will be = to 1 winner

P
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