This is used when price makes its bottom dip (major support area). It looks like double bottom (W) in shape with points 2 & 3 showing after the established bottom dip or major low. This is significant when used in higher time frames (4-hour, daily, weekly and monthly charts).
Point 1 - Price makes its major low/support at the end of downtrend.
Point 2 - Price retraces upward a little, then resumes its original downtrend
Point 3 - Failure to make new low, and it starts rising higher.
Noble entry point is the #3 where uptrend begins. But this has to be confirmed very accurately with the aid of other technical indicators like Stochastic, MACD and Williams' Percent
Range.
1-2-3 DOWN Pattern
This occurs when the price makes a sustainable uptrend (rally top) and starts declining. The pattern looks like double top (M) with points 2 & 3 showing after the established rally point. The logic behind this pattern is:
Point 1 - Price makes a major top at the end of uptrend.
Point 2 - Retraces down a bit, then later resumes its uptrend.
Point 3 - Failure to make a new high (with Point 1) and then eventually declines down.
Like in the trade chart of USDCHF above, from July 7th - 15th, 2010, we could be able to make 559 pips (valued $5,590.00 using 1.0 standard lots). That's strictly no-stress, very simple trading. We had 3 trade setups from 1-2-3 DOWN Pattern, and 1 trade setup arising from 1-2-3 UP Pattern. You will notice that the last pattern, 1-2-3 DOWN, was very significant because it is identified rightly at the rally top (uptrend) of USDCHF chart.
Open a trade chart from your given trading platform and start seeing this pattern developed into potential trades. Remember, whatever the mind can conceive and believe, it can achieve too.
