The 123 Chart Pattern Forex Strategy is a simple price action trading strategy based on the 123 chart pattern.
Can use the 123 chart pattern in both the uptrend and downtrend markets.
The 123 Pattern
How does a forex 123 pattern form in a chart downtrend and uptrend?
These two mt4 charts below show the difference between the 123 chart pattern and an uptrend.
Read More : 20 Pips A Day Forex Trading Strategy
This image shows 123 chart patterns in an uptrend:
This image shows 123 chart patterns in a downtrend:
How To Trade The 123 Chart Pattern
- Wait for a breakout candlestick once you’ve identified the 123 chart pattern. The breakout candlestick must breakout to the chart upside and close above point 2.
- place an MT4 buy stop order 1-2 pips above the high of the breakout candlestick
- Place your stop loss 5-9 pips below the low of the breakout candlestick.
- For take profit(TP), you can calculate it based on 1:3 risk to reward(RR) or use a previous chart swing high as your take profit(TP) target level.
- Once you’ve found the 123 chart pattern in a chart downtrend, wait for a breakout candlestick. The chart breakout candlestick must breakout to the chart downside and close below point 2.
- place a sell stop order 1-2 pips over the low of the breakout candlestick
- Place your stop loss(SL) 5-10 pips above the high of the chart breakout candlestick.
- For take profit(TP), you can calculate it based on 1:3 risk to reward or use a previous chart swing low as your take profit target level.
Another way to Trade Forex 123 Chart Pattern
The strategy trading rules given above are based on the chart breakout candlestick closing above/below point 2.
If you can’t wait for the chart breakout candlestick, then you can place your sell stop/buy stop pending order two pips below/above point 2.
Advantages of the 123 Chart Pattern Forex Strategy
- This is a straightforward price action trading system with clear trading rules.
- In a good and strong trending forex market, you can use multiple 123 chart patterns set up and add more trades as trends continue, thus pyramiding your way to increase profits.
The disadvantage of the 123 Chart Pattern Forex Strategy
- Sometimes the breakout candlestick may be very long, which means your stop loss(SL) distance will also reflect this.
- New forex traders may think identifying the 123 patterns complicated at first.
- False breakouts can happen.