1-2-3-4 Forex Trading Method

1-2-3-4 Forex Trading Strategy is a simple strategy almost equal to the forex system 123, but with an additional step that is point 4. A typical 1-2-3-4 chart pattern is best traded after a strong currency pair up - or downtrend and can be defined by an easy set of trading rules. A trader can confirm the reversal trade using a technical indicator such as DMI or MACD.

Some traders said that this forex strategy has a good success rate in reading the direction of the market price. Recommended to apply this forex strategy on 1H chart or greater and avoid to use it on smallerr time frame.


1-2-3-4 Basic Rules for Short Trades

• Point 1: The high in an up trending currency market.
• Point 2: A downward correction in the up trend, the lowest bar in the correction before the price moves back up to point 3.
• Point 3: The high in the move up from Point 2 but a failure to make a new higher high (Point 1).
• Point 4: Go short 1 pip below point 2

 
1-2-3-4 Basic Rules for Long Trades

The reverse is true when applying these basic rules for long trades but now:

• Point 1: The low in a down trending currency market.
• Point 2: An upward correction in the downtrend, the highest bar in the correction before the price falls back up point 3.
• Point 3: The low in the move down from Point 2 but a failure to make a new lower low (Point 1).
• Point 4: Go long 1 pip above point 2

1-2-3-4 Up Forex Reversal Strategy using MACD 

1. Trade this reversal pattern only after a strong downtrend
2. Place points 1,2 and 3 on your chart
3. Place a BUY order 1 pip above 2
4. Confirm the trade using the MACD indicator (or another); the MACD must signal a buy or in buy mode already.
5. Target level: Calculate the distance between 2 and 3; if for example the distance between 2 and is 50 pips, than 50 pips is your target level.
6. Place your stop 1 pip below 3

1-2-3-4 Down Forex Reversal Strategy Using DMI

1. Trade this reversal pattern only after a strong up trend
2. Place points 1,2 and 3 on your chart
3. Place a SELL order 1 pip below 2
4. Confirm the trade using the DMI indicator (or another); DMI must signal a sell or in sell mode already.
5. Target level: Calculate the distance between 2 and 3; if for example the distance between 2 and 3 is 250 pips, than 250 pips is your target level.
6. Place your stop 1 pip above 3

Source: www.aboutcurrency.com