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Forex 1-2-3 Method
This
particular technique has been around for a long time and I
first saw it used in the futures market. Since then I have
seen traders using it on just about every market and when
applied well, can give amazingly accurate entry levels.
Lets first start with the basic concept. During the course of
any trend, either up or down, the market will form little
peaks and valleys. see the chart below:
The problem is, how do you know when to enter the market and
where do you get out. This is where the 1-2-3 method comes in.
First let's look at a typical 1-2-3 set up:
Nice and simple, but it still doesn't tell us if we should
take the trade. For this we add an indictor. You could use
just about any indictor with this method but my preferred
indictor is MACD with the standard settings of 12,26,9. With
the indictor added, it now looks like this:
Now here is where it gets interesting. The rules for the trade
are as follows:
Uptrend
This works best as a reversal pattern so identify a previous
downtrend.
Wait for the MACD to signal a buy and for the 1-2-3 set up to
be in place.
As the market pulls back to point 3, the MACD should remain in
buy mode or just slightly dip into sell.
Place a buy entry order 1 pip above point 2
Place a stop loss order 1 pip below point 3
Measure the distance between point 2 and 3 and project that
forward for your exit.
Point 2, should not be lower than point 1
The reverse is true for short trades. As the market progresses
you can trail your stop to 1 pip below the most recent low
(Valley in an uptrend). You can also use a break in a trend
line as an exit.
Some examples:
There are a lot of variations on the 1-2-3 setup but the basic
concept is always the same. Try experimenting with it on your
favorite time frame.
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