1-2-3 Pattern Strategy
Introduction:
This is, without doubt, one of the very best chart setup patterns you will see. Once you understand, you will point them out all over the place. At the beginning of a new trend, at the end of a retracement, within a range-bound market or within a trending market.
Like any other pattern, it is not 100% successful but when combined with other tools this can be a great setup to work on.
Let’s keep it simple and proceed to how it plays out.
Above you can see a chart of Bitcoin to USD. We have a 1Hr chart in front of us. The trend in short term was bullish and logically we are looking for a long entry so our winning probability is high.
The pattern you can see on the chart is labeled as 1-2-3, where 1 is a low and 2 is an immediate high of the area. As you can see point 3 is low after point 2 but is higher low than point 1.
Point 1: This is a bottom
Point 2: This is a correction.
Point 3: This is a retest and the price doesn’t go beyond point 1. But if the price goes beyond point 1 then leave it and move on.
How to trade on it?
Position: When we find this set-up, we are looking for a break-out above point 2 after we mark 1-2-3 and we take the entry a little above the break-out from point 2.
Stop: We should have a stop below point 3.
Target: We should target anything above 1:1 SL to TP.