Price Action Strategies: Part 3

Part1:
- Early Read of Chart
- Angulars
- Zones

Part2:
- Territory: Win it, Prove it, Lose it
- Follow through (FT ) bars

Part 3:
- Bars1, 2, 8, 11
- VBTs
- 2Zeds
- Apex Splitters
- Fade4th of anything

Part 4: 123s

Part 4: Misc
(next page)

123s: A 3-bar Local Reversal Pattern

Some of you that use price-action techniques might already be familiar with "123s", ie, a group of three bars that form a local top or bottom (*).

In Alan's world there are good quality 123s and poor quality 123's. Much like the way there are variations in the quality of FT-bars, a good quality 123 is more powerful, in general, than a poor quality 123.

Alan's 123-form is identical to the "traditional" 123, but he has a few enhancements worth study, as follows.

Alan mentions that the best 123s are made in a zone that complements it, ie, a long 123 would be made in a support zone and a short 123 in a resistance zone.

Furthermore, there is a quality to the 123. It is well-made when the 3rd bar's LH/LL (or HL/HH) is also lower (or higher) than the 1st bar's High (or Low). A poor quality 123 is more likely to yield, in Alan's words, an unsustainable downside (or upside) move.

(*) NB: Alan's 3-bar 123 on a 10m chart might look like "Trader Vic" Sperando's 123 Reversal on a 3m or small tick chart. Note, however, that in the example shown, the left-swing high (or low) is, in fact, lower than the right swing high, making it a lower qualitiy 123 Reversal. Alan's method nuances this popular pattern quite nicely.

Template: sputnik's 123.dat template. (right-click to download)

Here are an example of a few poorly made 123's on a 10m YM chart.
Here are two examples of using 123s to forecast potential price action

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da Manual Price Action Strategies: Part 4 123's (3-bar pattern)

da Manual
Price Action Strategies: Part 4
123's (3-bar pattern)