The 1-2-3 Pattern Strategy

The 1-2-3 pattern is very common in the trading world and frankly speaking I love spotting those distinctive trades. As the name suggests, they form a 1-2-3 cycle and once you get used to spotting them you will be amazed by the accuracy of this method. Whether it is at the beginning of a new trend or the end of an actual trend, with this system you will be able to pick a highly profitable trade when it comes along your way.

I personally find that this system works best on the bigger timeframes, daily and above. However, if you are a bit of a thrill seeker, you may also use it on the smaller timeframes with some extra indicators to catch some quick profit.

This is better explained with a daily graph of the AUD/USD:

This pattern in commonly known as a 1-2-3 buy pattern and as you can see from the above graph, price bottomed, did a correction, then a retest and finally broke through the correction line marked as the red-line.

It seems a lot to grasp just by saying it but believe me it’s as simple as 1-2-3.

Point 1 - Price bottoms. Point 2 – Price does a correction Point 3 – Price retest and bang goes back to correction point and above.

This is a perfect set-up of the 123 system at work. There’s no tedious analysis, just spot the pattern and place your buy order 10pips above point 2.

(Note: some experienced traders usually jump in the market before the crowd and buy just below point 2)

It is crucial that the retest, which is labeled point 3, does not go beyond point 1. If price does go all the way down to point 1, it is not a valid pattern to take a trade. Abort mission and move to the next one.

Here is a short signal that we got on the USD/CAD:

Point 1 – Price tops Point 2 – Price correctionPoint 3 – Price retests and breaks red line to continue downward movement.

Now for you to get some practice and become familiar with those trades simply open a daily, weekly or even a monthly chart and spot those 1-2-3 patterns. Write it down on a piece of paper and count the number of wins you picked to the number of losses you incurred. Now calculate the accuracy on the system. I found that the system was accurate around 70% of the time and noticed that the higher the timeframe the more accurate the signals were and bigger were the moves.

I hope that this helps shed some light on the way to profit from the market and catch some big moves. These trades usually last anywhere from weeks to months and are great for traders who do not have time to sit in front of their computer all day long. If you are one of those traders I genuinely believe that this strategy will greatly help you in your trading.

Note: Usually the stop loss with such a system is anywhere between 100-300 pips depending on the timeframe you are trading. The bigger the time frames the bigger the stop-loss.

Remember only risk 3% of your tradable account. The path to success lies greatly on a sound money management system. Stick to this rule and you will prosper in your trading career.

To your success,
Ash Naeck