123 Trading Strategy is a simple trading strategy and is very popular among Indian traders. In this post, I will explain how the Strategy works and some important factors you need to consider while implementing this trading strategy.
What is 123 Trading Strategy?
The 123 Trading Strategy is based on three points: 1, 2, & 3 that form a swing. The Strategy can be used for both uptrend and downtrend. In an uptrend, we take a low as point 1 and its high as point 2. We take the higher low as point 3. Next, we plot a horizontal line on point 2 and wait for a breakout of the level. Once the price breaks the level, we enter a position after a pullback.
To implement the Strategy in a downtrend, we take a high as point 1 and a low as point 2. We take the lower high as point 3. Next, we plot a horizontal line on point 2 and wait for the price to break this level's downside. After the price breaks the level, we enter a position after a pullback.
What Time-frame is the Best to Implement 123 Trading Strategy?
Time-frame depends a lot on your trading type. For example, if you are a day trader, you will need to implement the 123 Trading Strategy on the 15m time-frame for the best results. Swing traders can implement it on the 1D time-frame. Any time-frame lower than the recommended time-frames for the respective trading types may lead to a lot of noise and eventually lead to wrong trades.
When to implement the 123 Trading Strategy?
As pointed out, you can implement the Strategy for both uptrend and downtrend. However, it's always best to wait for some good volume to kick in and a good rally before implementing the Strategy. It acts as a confirmation, and you can confidently plan your Strategy.
Another good place to implement this Strategy is when the price is close to a Supply or Demand. When the price is close to a demand zone, you can expect the start of an uptrend, while when the price is close to a supply zone, it could mean the beginning of a downtrend. Hence, you can plan and implement the Strategy accordingly.
When should you square off a position in 123 Trading Strategy?
To square off a position, you need to consider some essential factors. One is undoubtedly the profit you targetted based on your money management, and besides, you have to evaluate the level of your trade that may cause strong price rejection. If you are already at a good profit, it's wise to exit when the price is approaching a possibly strong rejection level.
However, if you haven't earned enough profit yet and want to continue with your position, you can trail your stop loss to cost so that even if things go against you, you don't make much loss. If the price succeeds in breaking the hurdles and moving in your favor, you must trail your Stoploss further but wisely. You must strive to lock your profit by trailing Stoploss at times like these.
I have explained the 123 Trading Strategy in detail in this post. Besides, I have explained the factors that you need to consider for more accuracy. Further, I explained how and when to square off your position. 123 Trading Strategy is an exceptionally easy-to-understand strategy, and using this Strategy, you have a high chance of earning good profits.
123 Trading Strategy FAQs
What makes the 123 Trading Strategy unique?
The 123 Trading Strategy distinguishes itself by utilizing three key points (1, 2, and 3) to identify swings in both uptrends and downtrends, allowing traders to enter positions after breakout confirmation.
How can one identify points 1, 2, and 3 in an uptrend using the 123 Trading Strategy?
In an uptrend scenario, point 1 is a low, point 2 is its corresponding high, and point 3 is a higher low. A horizontal line drawn at point 2 helps confirm the breakout for entry after a subsequent pullback.
What's the process to implement the 123 Trading Strategy in a downtrend?
During a downtrend, point 1 is a high, point 2 is its corresponding low, and point 3 is a lower high. Drawing a horizontal line at point 2 aids in confirming the downside breakout for entry after a pullback.
When is the optimal time to use the 123 Trading Strategy?
Implementing the Strategy after observing significant volume and a strong rally is advisable, ensuring more confident decision-making. Also, implementing near Supply or Demand levels provides valuable insights for planning trades.
How does one decide when to exit a position using this Strategy?
Exiting a position involves considering targeted profits based on money management principles and identifying potential levels that could trigger strong price rejections. Exiting near these levels is prudent if profits are satisfactory.
Can trailing the stop loss help manage positions in this Strategy?
Trailing the stop loss to the entry point can limit potential losses while allowing for further profit if the price moves favorably. This method ensures a balanced approach to risk management.
Are there specific indicators or tools to complement this Strategy?
While the 123 Trading Strategy stands on its own, combining it with tools like moving averages or trend lines could enhance decision-making and validate potential entry and exit points.
Is the 123 Trading Strategy suitable for beginners?
Yes, this Strategy's simplicity makes it suitable for beginners. However, understanding market trends and practicing risk management principles are crucial before implementing any trading strategy.
How often can one expect trading opportunities using this Strategy?
The frequency of opportunities varies based on market conditions. More opportunities might arise during volatile periods or strong trends compared to stable or consolidating markets.
Can this Strategy guarantee profits?
No trading strategy guarantees profits. However, the 123 Trading Strategy, when applied diligently with risk management and an understanding of market dynamics, can enhance the probability of successful trades.
This Strategy provides a structured approach to trading, but success ultimately depends on prudent execution, risk management, and adapting to evolving market conditions.