Now here is where it gets interesting. The rules for the trade are as follows:
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Uptrend
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6 n7 ]( ~& b% J( \- L) O 1. This works best as a reversal pattern so identify a previous downtrend.
0 o% G2 V& a1 E- C5 G+ b8 e 2. Wait for the MACD to signal a buy and for the 1-2-3 set up to be in place.
2 P/ y; n3 L0 D- a# t' e 3. As the market pulls back to point 3, the MACD should remain in
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buy mode or just slightly dip into sell.
" q) D% a, Q3 T; O! V* g 4. Place a buy entry order 1 pip above point 2
) N9 n. }% H+ Q {% T5 T 5. Place a stop loss order 1 pip below point 3
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6. Measure the distance between point 2 and 3 and project that
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. u7 l+ e, l0 H) [& m8 h 7. Point 3, should not be lower than point 1
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) D* w7 a5 [$ r, W The reverse is true for short trades. As the market progresses you can trail your stop to 1 pip below the most recent low (Valley in an uptrend). You can also use a break in a trend line as an exit.
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Some examples:
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7 H6 w- k3 G; fThere are a lot of variations on the 1-2-3 setup but the basic concept is always the same. Try experimenting with it on your favorite time frame.
