Forex 123 setup

This 3-step system is highly actionable and will mechanize your trading workflow. No more "paralysis by analysis". Uses mathematical wave and fibonacci models to predict where price is going. System offers clear, high probability price targets so you don't have to guess when to close a trade.

Peter Bain and Lennox Chambers created this system to help confused traders approach the Forex trading differently. They want to make it simpler and more mechanical with less subjective interpretation of the rules. They created Simple Forex Trader with the goal of making Forex trading more accessible and less tedious. Pivot Point 3 is crucial for the confirmation of the reversal chart pattern.

The reason for this is that it is the last component of the setup. In a valid reversal pattern, that point would not exceed Pivot Point 1. Worst-case scenario, it would be at the same level. Pivot Point 3 moving close to Pivot Point 1, but not reaching it is an indication of a stronger reversal pattern setup. This might be a good opportunity to enter the market based on a valid reversal! If the price breaks this level, then the pattern is said to be confirmed.

The sketch above gives an example of a reversal confirmation of the chart setup. The confirmation of the pattern is shown by the green circle, when the price breaks the Pivot Point 2 extreme. Your target level during a trade should be at a distance equal to the size of the chart pattern.

Applying it from the start of the confirmation level will give you your approximate target level. To measure the size of the pattern, you will need to build a couple lines yourself. Line 1 should connect Pivot Points 1 and 3. Line 2 is the horizontal level at Pivot Point 2. The size of your pattern equals the vertical distance between Line 2 and the midpoint of Line 1. The two purple lines are Line 1 and Line 2 respectively. The pink arrows apply the size of the chart pattern after the price confirms the setup.

The green horizontal lines show the area, which we expect the price to enter. Always use a stop loss order when trading the chart pattern or any other pattern. Your stop loss order should be placed in the area of Pivot Point 3. Sometimes, volatile market conditions can push the price to go beyond Pivot Point 3 for a short period. Then, the price will return and reverse again. The red horizontal lines on the sketch above show the best area for your stop loss order when trading the reversal pattern setup.

If the pattern is bearish, the stop loss should go above the top of Pivot Point 3. If the pattern is bullish, then you should place the stop order below the bottom of Pivot Point 3. Below, we have also added the approximate area of your take profit order during a trade. Again, this level is calculated using the measured move technique described earlier. You now have all the relevant trading levels for the reversal chart pattern. The reversal chart pattern combines well with a technical oscillator.

The reason for this is that oscillators can help signal extreme values, which can provide confirmation of trend reversals. The idea is to match a reversal signal from the reversal setup with a reversal signal from an oscillator indicator. If we have a bullish trend and the chart is forming a potential reversal pattern, we will be looking for an overbought signal from the RSI.

This way we will attain a stronger reversal signal, which is likely to bring a higher success rate for our pattern. Contrary to this, if the trend is bearish and we spot a reversal pattern, then we will try to match this signal with an oversold indication from the RSI. Another signal from the RSI that we can take is the regular divergence signal. Matching signals with RSI divergences will give us a higher probability trade on the reversal pattern. After all, the knowledge of another chart pattern emerging can always come in handy.

At the bottom of the chart, you see the RSI indicator. You can also see that the 1 2 3 trading strategy is taking advantage of the stair step nature of the market that is needed if a trend is going to continue. It is at the confirmation of the patter that a trader can place a conservative trading position in the market. We will look at a conservative method for those traders that need a little extra confirmation in their trades.

Keep in mind there is a cost involved. The longer you wait to get involved in a trading position, the larger you will have to make your stop loss. You should be familiar with the numbers and what they represent on the chart. We can see that price rallied from point 3, found resistance at point 2 and retraced. We now have a double bottom chart pattern and just as the 1 2 3 trading strategy needs a breach of 2 to confirm the pattern, so does the double bottom.

If you do get a double bottom after a move in price, that could signify weakness in the market. If bulls were fully in chart during the retrace at 2, we should not see two shots at the level 3. Price breaks above 2 and you can either enter at the breakout or, my preference, take a position at the close of the candlestick to confirm a true break.

You can also put an order to buy slightly above the candlestick that broke the 2 level. Your stop loss should be below 2 with buffer room to allow for noise. You can also, my preference is coming, use a 14 period Average True Range x 2. Price rallies from 1 and gives us a strong reversal candlestick at 2. Once price begins to retrace, put this currency pair on your radar.

Price find support at 2 inside the previous consolidation pattern from trade 1 and shows strength as it rallied to 2. Once price shatters the 2 price zone, enter at the close of the daily candlestick or whatever time frame you are using and use an ATR stop.