1-2-3 Trading Strategy

Mr. Victor Sperandeo made important observations in classic price patterns for treading reversals, and defined a 1-2-3 trading method. 

The trading pattern is formed based on the three consecutive price swings each swing stands higher or lower than the previous ones. 

The three swings can be explained in this form:

The first swing number ‘1’ is the movement in the opposite direction of the existing trend.

The second swing number ‘2’ is considered as the correction swing. 

The third swing number ‘3’ is the confirmation of the reversal and the beginning of a new trend. 

The below diagram states the 1-2-3 trading setup and it aims at identifying a reverse bull trending to take a short position (buyback the shares).

To illustrate it you must carefully follow the schematic diagram in which, consider 1, 2, 3 as Pivot 1, Pivot 2, & Pivot 3. 

Pivot 1: 

It is in the highest point of the existing trend. It is here that the 1-2-3 strategy can be employed to derive profit from the reversal of the existing trend. 

Pivot 2: 

The stock price enters into retracement down in which, the stock price declines from the existing trend, or after a slight decline, the stock price experiences a short term rise.

It means, pivot 2 is the end of the retracement down, and if you observe the break of major bullish trend lines, they will definitely be a reflection of the bearish momentum. 

Pivot 3: 

The short term rise of the trend makes collapse and then remember the point must never be higher than    Pivot 1. 

In such a case, the trend is said to be significantly influenced by the bearish notes and as and when the market breaks below the level of Pivot 2, you must enter the short position. 

Consider the Pivot 3 as the stop-loss for the ongoing pattern.