The 123 Strategy is one of the simpler and most profitable strategies i have come across, with some additions we arrive to a method to filter out trades and take out the guessing.
First of all, the question go to how i identify the swings high or low? to form the 123 structure, well you can do this by "eye" it only need to comply with the rule that THE 3 LEVEL CANNOT EXCEED THE NUMBER 1 LEVEL,
To make this easier, i use an indicator in NT called Swing with the strength parameter set to 5 , this automatically give me the swings high and low. (see Image 1) ,
Since i will be using the swing indicator to identify for me the levels, to sell i want to see two swing highs and one swing low, the swing low has to be in the middle of the two swing highs, (See image 3)
- The distance between the number 2 and number 3 cannot be more than 40 ticks.
- The closer the 2 and 3 the better.
- The price should be below the 18 EMA at the time of the breakout of number 2
- Place a pending order to sell 1 tick below the 2 level price
(The pending order is placed once you have a 3 level confirmed, )
If the down trend is strong the Number 3 has the possibility to turn in a number 1 and begin another assault down forming a new 123 structure.
I normally use Fibonacci Extensions to determine my profit levels, (See image to check on settings)
I take number 1 and extend down to number 2 since i will take a trade 1 tick lower the number 2 i place the last leg of FIB one tick below number 2, this gives me my profit targets.
About the Stop you should have a fixed number to loss a day, but every one is free to choose his stop.
NOTE: When you approach a "BURNING LEVEL" as i call them this could be, Prior day High, low, Open, Current Day Open, you should trade with caution.
Later we will see confirmation with DM and Stochastics.
J Dennis Neeman.
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Thanks for posting this, I found it interesting. I played around with it on sim today and had some success. Obviously this was all one downtrend in the larger scheme, but using this method and the fib extensions I was able to trade the minor pullbacks.