Learn How to Trade Profitably

By John Pontikas and Brian Dibbins

Chapter Fifteen

1-2-3 Trading Patterns

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This chapter describes the 1-2-3 patterns that occur in trending markets.

1-2-3 Patterns

A 1-2-3 set up exist in both short trending as well as long trending stock/markets.  Stock/markets always move in waves (peaks and troughs).  In an up trending stock/market, point one is the bottom, point two is the peak and point three is the retracement which does not go lower than point one.  If the retracement moves lower than point one, then the 1-2-3 is no longer valid.

In a falling market it is the same but in reverse. Point one is the top, point two is the trough and point three is the retracement, which does not go higher than point one. If the retracement moves higher than point one, then the 1-2-3 is no longer valid.

1-2-3’s are visible in all time frames, whether on a monthly chart or a one minute chart. In order to have a valid 1-2-3, a minimum of three bars is necessary. The first two bars provide the range whilst the third bar gives the retracement and sometimes even the entry.

1-2-3’s can form over several bars as well, but as mentioned before, a minimum of three bars is always a prerequisite.

Figure 15.1: 1-2-3 patterns