1-2-3 breakout trading system
For bigger profits, be sure to only trade a pattern that followed a strong trend. There is a continuous downtrend, with each new low and high lower than the previous lows and highs. Then the price breaks the downtrend line in Point 2 and forms a higher high. This is an indication of a possible trend reversal. Point 1 is the last low a possible bottom of the trend. Entering the market at this point is too risky. We need to wait for a complete pattern and Point 2 breakout. Continuing to move beyond Point 2, the price forms a new low which is higher than the previous one.
This means that the price is too weak to break the last low and form a lower low. This place is our Point 3. It completes the pattern. We need to wait for a Point 2 breakout. The price continues to go up and breaks Point 2. If we placed a buy stop in Point 2, it would be activated and our trade would be closed by taking profit if we used the standard take profit placement method, i. Here are some useful guidelines to help you correctly identify, interpret, and trade a pattern:. Many traders use a pattern in combination with different indicators.
If a pattern indicates an uptrend reversal, Stochastic must be in the overbought area. And vice versa.
Gold Price Action 1-2-3 method in the Gold Trading Market
If a pattern signals a downtrend reversal, Stochastic must be in the oversold area. This approach provides better signals and reduces potential losses. If, while Point 1 is emerging, Stochastic moves somewhere in the middle, this signal is not strong enough. We use Stochastic as a confirmation tool. Point 1 has formed and Stochastic is in the overbought area, which is a good sign.
Am not an expert here, but from the little experience, 1 2 3 pattern can used at any time frame.. This is one of the best continuation patterns cidering ons this adheres to the Elliot Wave Principle and the Fibonacci Retracement and Fibonacci Extension. Save my name, email, and website in this browser for the next time I comment. Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website.
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Top Gold Broker Rankings. Forex Contest Limited Time. Investors use gold price action to try and predict where a gold trend direction might go. The gold trading market is either trending or ranging. A trending market moves in a specific direction while a ranging market moves sideways, normally after hitting a support or resistance level.
Observing the behavior of gold price action provides this information of whether the gold trading market is trending or ranging or reversing its direction. As with any other Gold strategy this method should also be combined with other confirming indicators to avoid whipsaws. The pattern can give good signals in a trending market but will give whipsaws when the gold trading market is ranging, it is best to determine if the gold trading market is trending or not before you start using this strategy.
Another idea is to calculate recent price swings and average them out to get a relative price target. If the stock has made an average price swing of four points over the past few price swings, this would be a reasonable objective.
These are a few ideas on how to set price targets as the trade objective. This should be your goal for the trade. After the goal is reached, an investor can exit the position, exit a portion of the position to let the rest run, or raise a stop-loss order to lock in profits. It is important to know when a trade has failed. Breakout trading offers this insight in a fairly clear manner. After a breakout, old resistance levels should act as new support and old support levels should act as new resistance. This is an important consideration because it is an objective way to determine when a trade has failed and an easy way to determine where to set your stop-loss order.
After a position has been taken, use the old support or resistance level as a line in the sand to close out a losing trade. As an example, study the PCZ chart below.
1 2 3 Chart Pattern By The Numbers
After a trade fails, it is important to exit the trade quickly. Never give a loss too much room. If you are not careful, losses can accumulate. When considering where to exit a position with a loss, use the prior support or resistance level beyond which prices have broken. Placing a stop comfortably within these parameters is a safe way to protect a position without giving the trade too much downside risk.
Setting a stop higher than this will likely trigger an exit prematurely because it is common for prices to retest price levels they've just broken out of.
Price Action Tricks: How To Trade 1-2-3 Patterns
Looking at the above chart, you can see the initial consolidation of prices, the breakout, the retest, and the price objective reached. The process is fairly mechanical.
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When considering where to set a stop-loss order, had it been set above the old resistance level, prices wouldn't have been able to retest these levels and the investor would have been stopped out prematurely. Setting the stop below this level allows prices to retest and catch the trade quickly if it fails. In summary, here are the steps to follow when trading breakouts:.
Breakout trading welcomes volatility. The volatility experienced after a breakout is likely to generate emotion because prices are moving quickly. Using the steps covered in this article will help you define a trading plan that, when executed properly, can offer great returns and manageable risk. Technical Analysis Basic Education. Beginner Trading Strategies. Your Privacy Rights.
Combining This Strategy With other Indicators - RSI and Moving Averages
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