The 123 Forex trading strategy is one of the most effective ways to trade reversals. It works on any time frame and on any currency.
I prefer patterns like that because it has to do more with the price action so it's not just about using Forex indicators it's about the behavior of the price it self.
The 123 pattern is basically about breaking the low of the last valley or the high of the last peak. If for example the price made a new high then it bounced back for a while then it moves back to break that high then it's a strong indication that there is momentum upwards and vice versa.
In the pictures below there are 2 patterns for the 123 strategy, one is pointing down and the other one is pointing up so let's see when to buy or sell using this strategy.
Step # 1: Once the 123 pattern is formed place your sell stop entry below point 2 or in-case it was a bullish move place your buy stop above point 2.
Step # 2: To control the risk of you trade always make sure to place your SL target (Stop Loss) which is preferred to be few pips above point 1 if you are selling or below point 1 if you are buying
Step # 3: Now it's time to set your TP targets (Take Profit) as I always recommend your Reward: Risk ratio should always be 2: 1 meaning that your take profit target should always be double the risk. So in this strategy it's recommended to set a profit target 2X SL. So just calculate how many pips there is from point 1 to 2 and double that and set it as your TP.
It's always best to trade the 123 Forex strategy after seeing a solid double top, double bottom or a head and shoulders pattern it will just make you feel more confident and it will slash your risk. It's always better to see few patterns forming in your favor rather than trading only 1 pattern on it's own.
As usual, I always advise to learn and master a good money management strategy which I consider the most important tool in the Forex trading world. After you find a good Forex trading system, money management skills will help you keep the profits and even double your money much quicker than you think.
Source by Mohamed Rabea