How to use the 123 strategy effectively

What type of trade is the 1hr?

Hey guys,

I had a chance to completely read through this read over the weekend ahead of today's trading. I was able to follow the EU in real time marking the trades that I saw. Before I get too far, I wnted to post my chart in order to test my understanding. I like Paulus alternating signals. I appreciate your input.

Daytrade5

http://www.forexfactory.com/attachme...2&d=1295300348

Here is the chart again!!!

They all look good to me (first 2 are cleaner looking) and are per Paulus alternating method.

123 short

p

daytrade5 Hello.

first of all, I might be wrong, but i"ll give it a try... according to Paulus only trade #2 fits the rules.
take a look at the chart.

again, i might be wrong...still learning myself.
good luck with trading.

ForexSV,

I agree with your analysis. The market was already in a downtrend which makes my first setup a continuation. Trade #2 was clean. I see what you were talking about on Trade #3. One more bar would have made the setup look cleaner. I appreciate your input.

I took an early USDCHF short followed by EURUSD and EURCHF longs.

Hi Pres78, when you said early did you mean that you didn't wait for the close of the Asia and beginning of the London or did you mean early in your trading day? Also, do you look at both 5 and 15 tf's and take ones that look clean to you or do you have just a few pairs you watch?

I've attached my 5m eurusd and gbpusd from this morning. Both were shorts based upon the Asian session. The EU was a loser according to how I drew the 123's and since it was a failed short I'm looking for another short which may be developing now. The GU is still an open short. Comments on my chart reading. Thanks Lynn

Early as in during Asain Session (3:15AM server time, 10:30pm my time). London open for me is 4:00 AM so it was well pre London. For this trade I set a pending sell order at point 2 my TP at -100, SL at point 1 and went to bed. The EURUSD trade was set-up and executed right around LO (4AM my time) when I got up to check my charts. I always try and get up from 3:30AM until 4:30AM to check for set-ups and to see what LO brings. EURCHF trade wasn't formed yet but my cat woke me up again at 5AM after I just fell back to sleep since I get up for work at 6:30AM so I wandered back down to my computer to check my EURUSD trade and during a quick scan I found the EURCHF trade had set-up.

I trade all pairs with a spread of 3 or less on my broker and try and focus on pairs with ADR's of at least 100. I prefer the ones that move 150 or better like EURUSD, GBPUSD, EURCHF, EURJPY...

As for timeframes I open my platform and open each pair one by one and flip from 1hr (to check main trend), down to 15 and then 5min to see what set-ups are forming. I am not biased to direction and I am not looking short only let's say if I just had a successful long. As I have mentioned several times in the past I will at times have both a long and short count in place at the same time. And yes I look for the cleanest looking set-ups by checking both TF's.

Now for your charts and this is just my opinion...

The EURUSD short for me is just way to messy looking and takes way to long to form. Your point 1-2 is around 55 pips (higher for a 5min trade) and the retrace to 3 is alomst as much (around 43). Your point 1 was taken off the high of a news bar (High Impact EUR news) and then once point 2 and 3 formed it wasn't terrible looking. The price movements after that on the way to point 2 short trigger was very, very messy and took over an hour and a half to get to your trigger this alone would have scared me into not taking the trade. I am a big fan of clean looking PA and chopiness on the way towards my entry makes me wary.

You may look at my USDCHF as say it's not a nice clean move but I was asleep when it triggered and even still price mostly moves in a stright line towards my entry.

Now onto the GBPUSD... your point 1-2 is 83 pips which for me is way too much for a 5min trade. Your point 3 forms as a nice 50% retrace but again even if you targeted the -50 fib using point 2-3 pips as your 1:1 target you are still looking for price to move over 40 pips (again for me this is very high for a 5min set-up). These kinds of high pip set-ups are ones you see on 1hr charts not on one as low as 5mins. And lastly the wide range upbar to the left would keep me out of the trade as PA can become trapped in this bars range before choosing a path (as I showed yesterday on a USDCHF example).

I don't know if this has helped on just confused you but I hope you can see my reasonings for what they are worth. The biggest thing I can stress is that on 5min charts you don't want to me getting into trades with such high pip targets.

Again as I have mentioned I trade 123's differently than Paulus's method so perhaps someone who trades that method can offer some further advice or correct me if I have said something incorrect.

Jason

Guess my no. 3 wasn't perfect but I took this one and it went to profit super fast.

Yes I am not sure what is causing this US strength surge.

I agree with Jason about the high pip setups. I've been backtesting AUDUSD and the best setups seem to be around 10 - 15 pips however messy it looks. For me to go for a high Pip setup, I would have to take account of longer term S/R and trend before taking them. I'll post more results for AUDUSD when I've done more testing but December gave very good results and also seem to work in all sessions

The EUR is NOT out of the woods yet, even though China has said they were going to buy a bunch of their debt..... Also we are still in this channel and until it is broken we can expect some erratic behavior.

Very true.

Jason, thanks for your comments. They are very helpful to me in sorting out a strategy based upon 123 concepts that I can make my own, so to speak, and be profitable at. Thanks Lynn

Anytime... Best of luck.

Hi Lynn
GU trade. I agree totally with the advice from pres on size of runs to get into a move, also as this was counter daily trend.

The first retrace is the best trade and this chart shows the first 1 2 3 count. The arrows down show the next 2 lh legs. The x has made a hh compared to the last small leg down. GU and eur like 75/25 psych levels and they might be worth adding to your charts.

Here is my pound short tonight. Lets see where it takes us.

Stopped out for +1. Back tomorrow night for more fun!