forex 1 2 3 pattern indicator forex
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Forex 1 2 3 pattern indicator forex crypto backtesting

Forex 1 2 3 pattern indicator forex

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 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. Click Here To Join 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. The black dots show the Pivot Points of our chart pattern. Also take note of the formations outlined in blue on the chart. They represent some other chart patterns that we will use during our trade analysis. Here is what happens: We spot a bearish trend on the chart blue bearish line.

At the beginning, it might be hard to spot the first two Pivot Points on the chart. However, when the price closes a higher bottom at Pivot Point 3 and then closes a candle above the blue bearish trend line, this triggers some bullish thoughts. At the same time, the first rectangle on the RSI indicator shows an oversold market condition. Then, suddenly, we see that the price breaks the trigger line of the chart pattern, which we could take as a long signal.

We place a stop loss order below Pivot Point 3 and a take profit order at a distance equal to the size of the pattern pink arrows. Instead, we see a correction with the shape of a Flag chart pattern blue bearish channel. Notice that the stop loss order is still intact. Later on, the price breaks the flag in the bullish direction and hits our take profit line.

If you are not trading with a take profit order and relying on price action alone for collecting your profit, here is how you may have analyzed the price action. The price continues into another correction that is horizontal and then shoots up again.

At the same time, the RSI gives a strong overbought signal. The market starts consolidating and we see a candle closing below the lower level of that consolidation. This is a strong signal for closing the trade here. If you closed the trade at the target line, this would have equaled a profit of around 45 pips. The interesting thing about this trading example is that the reversal chart pattern acts as a double bottom.

And we trade it very similarly to a double bottom chart pattern. The Pattern Setup as a Continuation Although we are approaching the chart setup as a reversal, it could also act as a continuation pattern. In other words, it could give us a signal that the trend is not reversing. Instead, we might be looking at a flatter correction, which could trigger a new move in the same direction.

After the pattern forms Pivot Point 3, changing the direction of the price, there are two cases, which we need to consider: Case 1 — Potential Trend Reversal This is what we already discussed — the pattern as a reversal. The price can break the level at Pivot Point 2, confirming a potential reversal. This will trigger our reversal trade. Case 2 — Potential Trend Continuation This is another consideration.

If the price fails to break the level at Pivot Point 2, or breaks it slightly and then reverses quickly, then this was most likely a flatter correction. The breakout in Pivot Point 3 will give us a signal that the trend is resuming. In this case you should consider trading in the direction of the previous trend. The vertical distance between Line 2 and the midpoint of Line 1 will give you the size of the pattern. However, since the pattern confirmed a continuation, we need to apply its size in the direction of the continuation.

You should take Pivot Point 3 as a starting point of your target. In many cases, the continuation version of the chart pattern will have the characteristics of a wedge , a flag or a triangle. Again, we have the RSI indicator at the bottom of the chart. We have a bearish trend at the beginning of the chart. Then, the price starts consolidating. We confirm the presence of Pivot Points 1, 2, and 3. However, this time the price fails to break the resistance at Pivot Point 2, turns around and breaks the level at Pivot Point 3.

In this scenario, we suspect that the trading pattern is very likely to act as a continuation here, and not as a reversal. At the same time, the RSI indicator gave us an overbought signal, which confirmed the bearish idea on the chart. This is a good opportunity to sell. The stop loss order should go above the level of Pivot Point 2. We should apply the target downward, starting from the confirmation level at Pivot Point 3. We do this by measuring the size of the pattern and applying it starting from the confirmation level as shown with the pink arrows.

After the confirmation signal, the price creates a correction and turns the support at Pivot Points 1 and 3 into a resistance, which gives an even stronger short signal. At the same time, an important bar is being formed near point 3, indicating a high risk of a decline. As filters for the described graphical configuration, we can use not only price action tools, but also standard or non-standard indicators.

The trader will play out the pattern only if they see a divergence - different locations of tops bottoms in the charts of currency pairs and indicators. In the chart, the tops in the growing market are declining, while the indicator consolidates their growth. Divergence allows a trader to effectively enter a short position. As indicators, we can use both trend indicators as in the above example - MACD and oscillators, some of which are based on the detection of overbought-oversold zones.

If you succumb to the general criticism and believe that the indicators based on prices are lagging, you can return to the price action methods. My experience suggests that speed is important in the implementation of the reversal model. If the trend line constructed on the basis of point 2 and the previous fractal breaks through three bars, then the bulls in the growing market run away from the battlefield, having lost faith in their abilities to restore the uptrend.

It should be noted that the trader must initially determine the time interval to work with. This is necessary to ensure that by leaping from one time frame to another, filters are not artificially changed. Simply put, do not be like a pig that will always find mud. As a rule, in the first case, large players do not have time to take profits at the optimal level, as they cannot find the required number of buyers. In order to reduce the risks of such a scenario, they deliberately try to assure their opponents that the uptrend is not yet complete, and the situation may become favorable for the bulls at any moment.

Alas, this is just a deception, a trap created in order to take money from the plankton. The formation of trading ranges With regard to the pattern, to which several previous materials have been devoted, the formation of consolidation allows us to talk about the varieties of the pattern. Often, the trading range is formed within the wave , but a wider spread of waves should not scare you, because it allows you to implement a variety of strategies.

The most popular variety of pattern is the Splash and Shelf model described in Linda Raschke's best-selling book Secrets of Top Trading Performance. She assumes the formation of a peak in conditions of a bullish trend with the subsequent formation of consolidation. The market mood is changing rapidly, and the bears intercept the initiative in case the lower border of the trading range the shelf is broken. This is the entry point to the short position. Conservative traders should click SELL after the closure of the breakout bar.

It must be below the shelf. The Splash and Shelf pattern, unlike , is not an exclusively reversal model. It can be played out in BUY on the bullish market if the quotes have approached the upper boundary of the consolidation range, and then took it by storm and took the buyers to the operational space. However, bears often arrange traps for their opponents. One of them is related to the formation of the pattern Fakeout-Shakeout.

The key condition for its formation is an unsuccessful testing or the so-called false breakout of one of the boundaries of the consolidation range. If the quotes of a currency pair return to its middle, there is your entry point to the short position. A stop order should be set at the level of one of the previous extremes. Conservative trading involves entering into shorts at the breakout of the lower boundary of the shelf. It should be noted that the Fakeout-Shakeout is an independent pattern and often appears in the charts with no connection to If the analyzed pair managed to rewrite both extremes one at a time, and then returned to consolidation, then the probability of the Broadening Wedge pattern formation is high.

We will talk about it in great detail in one of the following articles. Now I would like to draw your attention to selling at the breakout of the lower limit of the consolidation range Using consolidations within the implementation of various reversal graphical configurations is the favorite strategy of many traders. Trading ranges give the opportunity to win some time and think about best entry and exit points, position size and risk. As a result, you make a weighed decision that you feel confident in.

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After this, leg 1 happens another movement happens that is a small replacement. We call it leg 2. This leg 2 will create a higher low. When the next movement takes out the recent high of leg 1, we will call that leg 3, and thus the 1 2 3 patterns formed. Breakout traders can take this opportunity to trade breakout trade setups. For getting the best output from 1 2 3 patterns, many traders used this breakout pattern in conjunction with some other price action formation like the supply-demand pattern.

Trade procedure using 1 2 3 pattern indicator First, identify the potential trend reversal points. In this reverse point, most of the trades happened. In addition, the pattern indicator for mt5 is created to show you upcoming buy and sell patterns on your charts. Here in mt5 charts, you will also be able to see the trade entry points. For fixing your profit targets, just apply Fibonacci levels. Many indicators are using only some pairs, like major pairs. At the bottom of the chart, you see the RSI indicator.

The black dots show the Pivot Points of our chart pattern. Also take note of the formations outlined in blue on the chart. They represent some other chart patterns that we will use during our trade analysis. Here is what happens: We spot a bearish trend on the chart blue bearish line. At the beginning, it might be hard to spot the first two Pivot Points on the chart.

However, when the price closes a higher bottom at Pivot Point 3 and then closes a candle above the blue bearish trend line, this triggers some bullish thoughts. At the same time, the first rectangle on the RSI indicator shows an oversold market condition. Then, suddenly, we see that the price breaks the trigger line of the chart pattern, which we could take as a long signal.

We place a stop loss order below Pivot Point 3 and a take profit order at a distance equal to the size of the pattern pink arrows. Instead, we see a correction with the shape of a Flag chart pattern blue bearish channel. Notice that the stop loss order is still intact. Later on, the price breaks the flag in the bullish direction and hits our take profit line.

If you are not trading with a take profit order and relying on price action alone for collecting your profit, here is how you may have analyzed the price action. The price continues into another correction that is horizontal and then shoots up again. At the same time, the RSI gives a strong overbought signal. The market starts consolidating and we see a candle closing below the lower level of that consolidation.

This is a strong signal for closing the trade here. If you closed the trade at the target line, this would have equaled a profit of around 45 pips. The interesting thing about this trading example is that the reversal chart pattern acts as a double bottom. And we trade it very similarly to a double bottom chart pattern. The Pattern Setup as a Continuation Although we are approaching the chart setup as a reversal, it could also act as a continuation pattern.

In other words, it could give us a signal that the trend is not reversing. Instead, we might be looking at a flatter correction, which could trigger a new move in the same direction. After the pattern forms Pivot Point 3, changing the direction of the price, there are two cases, which we need to consider: Case 1 — Potential Trend Reversal This is what we already discussed — the pattern as a reversal.

The price can break the level at Pivot Point 2, confirming a potential reversal. This will trigger our reversal trade. Case 2 — Potential Trend Continuation This is another consideration. If the price fails to break the level at Pivot Point 2, or breaks it slightly and then reverses quickly, then this was most likely a flatter correction.

The breakout in Pivot Point 3 will give us a signal that the trend is resuming. In this case you should consider trading in the direction of the previous trend. The vertical distance between Line 2 and the midpoint of Line 1 will give you the size of the pattern. However, since the pattern confirmed a continuation, we need to apply its size in the direction of the continuation. You should take Pivot Point 3 as a starting point of your target. In many cases, the continuation version of the chart pattern will have the characteristics of a wedge , a flag or a triangle.

Again, we have the RSI indicator at the bottom of the chart. We have a bearish trend at the beginning of the chart. Then, the price starts consolidating. We confirm the presence of Pivot Points 1, 2, and 3. However, this time the price fails to break the resistance at Pivot Point 2, turns around and breaks the level at Pivot Point 3. In this scenario, we suspect that the trading pattern is very likely to act as a continuation here, and not as a reversal.

At the same time, the RSI indicator gave us an overbought signal, which confirmed the bearish idea on the chart. This is a good opportunity to sell. The stop loss order should go above the level of Pivot Point 2. We should apply the target downward, starting from the confirmation level at Pivot Point 3.

We do this by measuring the size of the pattern and applying it starting from the confirmation level as shown with the pink arrows. After the confirmation signal, the price creates a correction and turns the support at Pivot Points 1 and 3 into a resistance, which gives an even stronger short signal. At the time when the target is met, the RSI indicator is giving an oversold signal, which is a good reason to close the trade. The interesting thing here is that when acting as a continuation, the pattern here resembles an ascending triangle chart pattern.

And we trade it as such. Click Here To Download Conclusion The chart pattern is a appears frequently in the price action and is often a reversal signal. The setup consists of three pivot points. The confirmation of the reversal pattern lays at Pivot Point 2. The target when trading a formation is at a distance equal to the size of the pattern, applied beyond Pivot Point 2. Your stop loss should go beyond Pivot Point 3. The reversal trading pattern has the structure of a double top or a double bottom.

The chart pattern combines well with an oscillator — the RSI for example. Combining price action techniques comes in handy when using setups. The setup could also work as a continuation pattern.

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My Favorite Pattern - 1-2-3 Reversal Pattern

10/24/ · This handy and smooth 1 2 3 pattern indicator makes a way to trade both the breakout and reversal market. 1 2 3 pattern indicator is built with 3 price movements. You . The indicator draws the famous trading pattern on the chart. Trading this pattern is quite easy: Take a look (screenshot below) at the third line of the trading pattern, when it is red . 8/28/ · The 1 2 3 Pattern Forex Indicator is a reversal pattern that ends at a percent or percent Fibonacci extension and is characterized by a string of higher highs or lower .