This is a price action trading strategy called the Multi-Timeframe Trading With Trendline Trading Strategy And 123 Pattern and it is a forex strategy complimentary to the trendline trading strategy and to understand the concept of what I’m about to show you here, you need to think in terms of multi-timeframe trading.
What does multi-timeframe trading mean?
It simply means that you are using using a combination of timeframes to watch for a setup and the actual trade that you take is made in the much smaller timeframe.
Now, the chart below shows a trendline trading strategy sell setup that would have fetched hundreds of profitable pips very easy.
But notice the timeframe? its in 4hr timeframe.
During that 4hr timeframe, what happened in the 15 minute timeframe or the 5 minute timeframe?
THIS IS WHAT IT LOOKS LIKE IN A 15 MINUTE CHART
THIS IS WHAT IT LOOKS LIKE IN A 5 MINUTE CHART
Just notice that after price hit the trendline, it went down and then try to come back up to test the trendline but point 3 never went past point 2. Therefore its a valid 123 pattern.
So how you could also have traded it would have been by using the 123 trading method.
DOES 123 PATTERN FORM ON EVERY TRENDLINE TRADING SETUP?
So why not just use trendline trading strategy and trade this types of setup?
Well, the best answer I can give you is this: sometimes if you are unsure if price will break the trendline and go up(or down), then using this trading technique will at least allow you to have a lot more confidence when the breakout happens at point 2 where you either sell or buy.
TRADING RULES-HOW TO TRADE THIS SETUP
The charts I’ve given above makes the rules of this strategy very easy to understand:
- if you are watching a trendling trading setup happening in a larger timeframe, for example, 4hr, then when price hits that trendline you switch to a much smaller timeframe to see if you can spot a 123 pattern forming.
- If you see the 123 pattern forming and if its a sell trade setup, you place your stop loss 1-2 pips under the low of point 2.
- If its a buy trade, you place a buy stop order above the high of point 2.
- Your stop loss will be above/below point 1.
- Take profit taraget can be 3 times what you risked or using previous swing highs (for buy order )or lows (for sell order).
ADVANTAGES OF Multi-Timeframe Trading With Trendline Trading Strategy And 123 Pattern
- A really solid price action forex trading strategy that stands the test of time.
- you will see that the risk to reward ratio of this forex trading system is really amazing and can make your hundreds of pips a month easily when the market conditions are perfect.
- stop loss most times are placed at ideal locations, (behind support and resistance levels) making sure that you get less chance of being stopped out.
- with the addition of the 123 pattern, it also stops you from trading a false trendline trading setups.
DISADVANTAGES Of Multi-Timeframe Trading With Trendline Trading Strategy And 123 Pattern
- no forex trading strategy can give you 100% win rate…that would be a holy grail forex strategy, right?
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