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1-2-3 Reversal pattern strategy, , 2021-08-26, , , , 123 reversal setup is a basic on-chart formation, that, warns about upcoming trend reversal., , Setup, , The 123-chart pattern is a three-wave formation,, where every move reaches a pivot point. This is, where the name of the pattern comes from, the 1-2-3, pivot points., , Here is how the pattern looks like:
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123 pattern works in both directions. In the first, , case, a bullish trend turns into a bearish one. And the, second picture presents the opposite, a bearish trend, turns into a bullish one., , The structure of 123 chart pattern, , The pattern appears after three price movements,, which form three pivot points and a confirmation, level., , Pivot point 7., , This is a turning point that the price formed during, the trend. If a price breaks the previous trendline, after it formed pivot point 1, the pattern will be more, reliable., , Pivot point 2., , The next turning point is very likely to form outside, of the previous trendline or channel. This is a good, indication that the trend might be ready to end and, reverse., , Pivot point 3., , Pivot point 3 is crucial for 123 reversal chart, patterns. The point must not exceed the pivot point 1, (in the worst case it might be on the same level) for, the pattern to be valid.
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Confirmation level, , The confirmation level is our entry point in the, market. It is located at the same level as pivot point, 2. When price breaks through this level open the, trade., , , , Target level, , To set the target trader needs to connect 1 and 3, pivot points with a line. The size of your 123 pattern, equals the vertical distance between Line 2 (which is, a horizontal line at the level of 2 pivot point) and the, midpoint of Line 1.
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123 chart pattern stop loss setup, , It is highly important to use stop loss when trading, the 123 chart pattern. The stop loss should be set, under pivot point 3 in the bullish trend reversal, and, above in the bearish one. In the condition of high, market volatility, the price might get pushed beyond, the 2 pivot point for a while. That's why it will be a, good idea to set stop-loss slightly beyond the 3 pivot, point, as this will prevent stop loss from being, activated.
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Continuation 123 pattern setup, , 123 pattern also might work as a continuation, pattern. In other words, it could give a signal that the, trend is not going to reverse., , In this case, the price does not break the, “confirmation level” at pivot point 2. On the contrary,, it returns to the pivot point 3 level and breaks it, through. This setup gives a signal that the trend will, continue., , Stop-loss in continuation pattern formation, , If you are trading the 123 pattern as a continuation, formation, then your stop-loss order should go, beyond Pivot Point 2., , The target level of 123, continuation pattern, , The target of the “continuation 123 pattern”, measures the same way as usual. The only exception, is that in this case, you should take pivot point 3 as a, starting one of your target.
