What Is A 1-2-3 Chart Pattern?

Today, we’re looking at a technical analysis formation known as the 1-2-3 chart pattern. We’ll discuss what it is and also give some recent examples.

Introduction

Technical analysis can be quite intimidating if you’ve never used it before. So, what is it and how do you start using it? Technical analysis involves using price action and chart patterns to analyze and attempt to predict future price movement. The other type of analysis is called fundamental analysis and uses financial statements and examination of the company itself to predict future price movement.

Which is better? Neither are foolproof and it really depends on how you want to approach trading. As for technical analysis, you are probably already performing technical analysis.

Ever look at support or resistance levels? How about indicators like MACD, RSI, CCI, or moving averages? Ever notice a chart pattern like head-and-shoulders or triple tops? These are all examples of technical analysis.

Today, we are going to focus on a particular chart pattern called the 1-2-3 chart pattern. I am going to couple it with a popular momentum indicator, RSI. Once you’ve been around the markets awhile, you will learn to never base your trades on a single pattern or indicator. We always want our patterns and indicators to provide confirmation or divergence as a way to signal a buy or sell for our trade.

You could just as easily combine this pattern with a trend indicator like the average directional index (ADX). It is a trend indicator used to measure the strength and momentum of a trend, and it is what I would most likely use, myself. I opted to use RSI instead because it’s easier to explain and I want us to focus mainly on the chart pattern.

What is a 1-2-3 Chart Pattern?

As with most chart patterns, there is a predefined set of price movements that satisfy the pattern criteria, which provides a buy or sell signal. The chart below shows the price pattern of a hypothetical stock called XYZ. Assume we are using the trading timeframe you normally use.

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Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are ...

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Comments

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William K. 2 weeks ago Member's comment

Really quite interesting. But how can something with no mass have inertia? Or is inertia being used to describe a slow response time? And the quick trading, buying at that "c" point on the curve and hoping to sell at that unmarked peak that follows is trusting that there will be a buyer at that price. And I have not found a way to magicly produce buyers always wanting to pay what I ask.