L

higher low

The entire 1-2-3 high or low is nullified when any price bar moves prices equal to or beyond the number 1 point. Note: The #3 point does not come down as low as the #1 point in a uptrend, or as high as the #1 point in a downtrend.

We set a mental or computer alert, or both, to warn us of an impending breakout of these key points. We will not enter a trade if prices gap over our entry price. A gap occurs when prices jump from where they previously finished to where they currently begin. A gap can occur when prices are moving up or when prices are moving down. We will enter it only if the market trades through our entry price.

1-2-3 highs and lows come only at market turning points that are, in effect, major or intermediate highs or lows. We look for 1-2-3 lows when a market seems to be making a low, or has reached a 1/3 or greater retracement of prices from a low. We look for 1-2-3 highs when a market appears to be making a high, or has reached a 1/3 or greater retracement of prices from a high.

Exact entry will always be at or prior to the actual breakout taking place. I will cover more of that concept when we discuss the Trader's Trick entry.

The next figure illustrates the 1-2-3 formation in action.

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