The 123 pattern is a reversal chart pattern which occurs very frequently and has a very high success ratio. This pattern can be found at the end of trends and swings. This can also indicate a change of trend. You can also found this pattern in a trading range. They take place when the directional momentum of a trend is diminishing.
The Turthe Channel Trading;
Show 123 V.2 indicatorS fetures:
Up color = green
down color= Red
Failed up color= lime
Failed down color= orange
Fib piv 2 (only for time frame h1);
Trade only in direction of the Turtle Trend Channel
Buy on the break of the point 2
Sell on the break of the point 2
Time Frame 1 hour, Exit on the fibo pivot 2
Working of the pattern:
An indication of the change in trend is seen, when price retraces the original down move.
Failure to make a new low.
Price rallying again from here, creating an anticipation of a reversal.
Breach of the previous high, confirming the reversal.
It would be best to enter a trade during the break of point 2 – the previous high (or low as the case maybe).
Place stop loss at the low of point 1. Those who are aggressive put their stops at point 3. Give the price a room to move without hitting the stops.
To take profit, you must use a measure move concept because this pattern don’t have any specific target. To do this, you must calculate the distance from point 1 to point 2 in the formation. Add this to the low of point 3, and this should be the minimum distance that price will travel to.
Some practical points:
The setup of the entire pattern from point 1 to 3 could take place in 3 bars or as long as 20 bars. But the rules of pattern remain the same.
A point to keep in mind here is that the more the number of bars involved in the setup, bigger should be the move. This is not a fixed rule, but more often not, this concept is followed by the price.
Allow the pattern to prove itself before entering a trade. If point 3 forms below point 1, the pattern is negated.
Similarly price has to break the high of point 2 for confirmation.
There will be times when price will consolidate within the area of points 2 & 3, without giving any indications of the direction. At such times it is better to stay out, till price action confirms a direction. Target zone. Target Zones:
The measured move concept.
Fibonacci ratios are a very popular tool among technical traders and are based on a particular series of numbers identified by mathematician Leonardo Fibonacci in the thirteenth century.