123 Trading Strategy

Mastery of financial trading requires a comprehensive understanding of Forex trading strategies, which are essential tools for traders. While oscillators and indicators can aid in the creation of sound Forex trading strategies, the actual strategy itself is one of the most critical components. The 123 Trading Strategy is a prime example of a trading strategy that is both simple and comprehensive, offering advanced market analysis in an uncomplicated manner, Lets take a look at it.

What is the 123 Trading Strategy?

The 123 trading strategy is a classic price action trading method used by Forex traders to identify potential trend reversal points in the market. This trading strategy is based on the principle of identifying support and resistance levels and using them to enter or exit trades.

The name “123” comes from the fact that this trading strategy involves three price movements, which are used to identify potential reversal points. The first movement is a strong move in the direction of the trend. The second movement is a corrective move that retraces a portion of the first move. The third movement is a continuation of the first move in the opposite direction.

To use the 123 trading strategy, traders first need to identify the trend in the market. Once the trend is established, traders look for the first strong move in the direction of the trend. This move is labeled as “1”. Next, traders look for a corrective move that retraces a portion of the first move. This move is labeled as “2”. Finally, traders look for a continuation of the first move in the opposite direction, which is labeled as “3”.

When price reaches the level of point 2, traders will look for a signal that the market is likely to continue the initial trend. This can be in the form of a bullish candlestick pattern, a break of a trend line, or any other confirmation that the market is likely to continue in the direction of the initial trend. Once this signal is confirmed, traders can enter a long position.

Conversely, when price reaches the level of point 2 in an uptrend, traders will look for a signal that the market is likely to reverse. This can be in the form of a bearish candlestick pattern, a break of a trend line, or any other confirmation that the market is likely to reverse.

123 Trading Strategy - MT4
123 Trading Strategy – MT4

Key Features of the 123 Trading Strategy

  • Simple: The 123-trading strategy is a simple and easy-to-understand trading method that can be used by both beginners and experienced Forex traders.
  • Based on Price Action: The 123 trading strategy is based on price action analysis, which means that it does not rely on complex technical indicators or fundamental analysis.
  • Helps to Identify Trend Reversals: The 123 trading strategy helps traders to identify potential trend reversal points in the market, which can be used to enter or exit trades at the right time.

123 Trading Strategy

Buy Signal

  • When the market is in a ranging state, and the retracement signal (2) occurs before the signal for continuation (3), a long position should be placed. In addition, the signal for continuation (3) should be confirmed by a blue color, which indicates that the bulls are currently pushing the market upwards.
123 Trading Strategy Buy Signal
123 Trading Strategy Buy Signal

Sell Signal

  • If the market is in a downtrend, and the retracement signal (2) occurs prior to the continuation signal (3), it is recommended to take a short position. Additionally, the continuation signal (3) should be verified by a red color, which signifies that the bears are presently pushing the market downwards.
123 Trading Strategy Sell Signal
123 Trading Strategy Sell Signal

123 Trading Strategy Pros & Cons

Pros

  • Simple and Easy-to-Understand: The 123 trading strategy is easy to learn and use, making it accessible to both beginner and experienced traders.
  • Based on Price Action: The strategy is based on price action, which means that it does not rely on complex technical indicators, making it a simple and effective trading method.
  • Helps to Identify Trend Reversals: The strategy helps traders to identify potential trend reversal points in the market, allowing them to enter or exit trades at the right time.

Cons

  • Requires Patience: The 123 trading strategy requires patience and discipline, as traders need to wait for the right conditions before entering or exiting a trade.
  • False Signals: Like any trading strategy, the 123 strategy is not foolproof and can generate false signals, leading to losses if not managed correctly.
  • Subjective: The strategy is somewhat subjective, as traders may interpret signals differently based on their experience and personal preferences, leading to potential inconsistencies in trading decisions.

Conclusion

The 123 trading strategy is a simple and effective trading method that can help Forex traders identify potential trend reversal points in the market. By analyzing price action and looking for specific signals, traders can enter or exit trades at the right time, potentially increasing their profits and reducing their losses.

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