1-2-3 Pattern Fibonacci Breakout Forex Trading Strategy – MT5

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Price Patterns, Fibonacci Ratios, Support and Resistance, Price Action, etc. Many new traders learn about these technical analysis elements without really trying to understand the reason behind why these things work. Some would think that these things are nonsense because they do not understand it, while others think it is like magic and so they follow it blindly. These elements of technical analysis work simply because these are patterns that reflect the predictable behavior of people when it comes to money. When you come to think of it, economics itself is the study of how society behaves when it comes to money. What these do is merely simplify the process of anticipating how the crowd would react to certain price movements based on recurring patterns of price movements on the chart.

One of the most popular Price Pattern is the 1-2-3 Pattern. This pattern is simply a trend continuation pattern which shows us how traders react to price pulses with strong momentum. It also incorporates the elements of Fibonacci Ratios, Price Action, as well as breakouts from Support and Resistance levels. Let us take a look into how this type of pattern is traded and simplify this trade setup using a customized technical indicator.

The 1-2-3 Price Pattern

The 1-2-3 Pattern is a trend continuation pattern which is formed whenever a strong market swing takes place. In fact, this strong market swing is the first leg of the pattern.

A smart trader would always secure profits whenever they can. Traders who were able to ride the first wave of the pattern would exit their trades at a certain point because they would want to secure profits. Then, price would start to pause or pullback slightly. Then, other traders would follow seeing that the initial momentum pulse has ended. This causes price to pullback quite deeply. These pullbacks are often more than half the length of the initial market swing. Coincidentally, it often stops right near the area of the 61.8% Fibonacci Retracement level. This is the second leg of the pattern.

Like any smart shopper, traders also love a deep discount. Pullbacks towards the 61.8% Fibonacci level are steep discounts of a trending price action. So, as traders, what do we do? We enter a trend continuation trade as price starts to show signs of a trend continuation. This sequence of actions cause price to gain momentum and often break the previous swing high or swing low formed by the initial market pulse. This is the third leg of the pattern and is predictable enough that many traders use it as a staple in their trading strategies.

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The 61.8% Fibonacci Level is the most efficient pullback level for this pattern because it is deep enough to allow some separation between our entry levels and the swing high or swing low formed on the first leg, which are also horizontal resistance or support levels. However, the 38.2% and 50% levels are also viable pullback points where price can bounce from after a retracement.

How to Trade the 1-2-3 Pattern?

Many traders like trading pullbacks at the 61.8% Fibonacci Level. This is the best scenario if you were able to foresee it. However, this is not always the case. Most traders are very reactive. We often see the market bouncing off the 61.8% level when it is already too late. Should we chase the momentum then?

Well, in most cases, chasing the momentum often causes losses. Remember, price made a previous swing high or swing low on the first leg of the pattern. These levels are also resistance and support levels which may limit the movement of price.

Another option would be to trade the breakouts from these swing highs or swing lows. The third leg of the 1-2-3 Pattern can either be the same length as the first leg or a bit longer than the first leg. It could even be as long as 161.8% which is another Fibonacci level. This give us enough room to profit from the breakout while trading the 1-2-3 Pattern.

Pattern 1 2 3 Indicator

Trading 1-2-3 Patterns are great. It is predictable and can produce huge consistent gains. However, identifying these patterns is not that easy.

The Pattern 1 2 3 indicator is a custom technical indicator which automatically identifies the 1-2-3 Pattern. It does this by incorporating a modified Zigzag indicator and an underlying Fibonacci Retracement level computation, as well as a Fibonacci Expansion computation which identifies the take profit target levels.

It plots the Zigzag lines, identifies the patterns, and plots an arrow pointing the direction of the breakout whenever it detects a viable 1-2-3 Pattern breakout.

We will use this indicator to help us identify possible 1-2-3 Patterns with ease and trade it accordingly as a momentum breakout setup.

Bullish 1-2-3 Pattern Breakout Setup

  • Wait for the Pattern 1 2 3 indicator to identify a viable bullish pattern.
  • The indicator should plot an arrow pointing up as price breaks above the swing high of the first leg.
  • Divide your trade size into three to allow for a staggard exit plan.
  • Enter the trade as soon as a momentum candle breaks above the swing high.
  • Set the stop loss below the entry candle.
  • Set the first take profit target at the first dotted line above the entry candle.
  • Trail the stop loss to breakeven as soon as the first take profit target is hit.
  • Set the second take profit target at the second dotted line above the entry candle.
  • Set the third take profit target at the third dotted line above the entry candle.

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Bearish 1-2-3 Pattern Breakout Setup

  • Wait for the Pattern 1 2 3 indicator to identify a viable bearish pattern.
  • The indicator should plot an arrow pointing down as price breaks below the swing low of the first leg.
  • Divide your trade size into three to allow for a staggard exit plan.
  • Enter the trade as soon as a momentum candle breaks below the swing low.
  • Set the stop loss above the entry candle.
  • Set the first take profit target at the first dotted line below the entry candle.
  • Trail the stop loss to breakeven as soon as the first take profit target is hit.
  • Set the second take profit target at the second dotted line below the entry candle.
  • Set the third take profit target at the third dotted line below the entry candle.

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Conclusion

The 1-2-3 Pattern is a viable trade setup which many traders use. It can be used as a second option whenever you are not able to catch the trade at the pullback.

Bulk of the profitable trade setups would reach the first and second take profit targets. The third take profit target is just a bonus if price does reach it. It is best to place bulk of your volume on the first two targets and just a fraction of the volume on the third target.

This setup simplifies trading the 1-2-3 Pattern. If you are finding it difficult to identify this pattern, then you may practice using this indicator.


Forex Trading Strategies Installation Instructions

1-2-3 Pattern Fibonacci Breakout Forex Trading Strategy – MT5 is a combination of Metatrader 5 (MT5) indicator(s) and template.

The essence of this forex strategy is to transform the accumulated history data and trading signals.

1-2-3 Pattern Fibonacci Breakout Forex Trading Strategy – MT5 provides an opportunity to detect various peculiarities and patterns in price dynamics which are invisible to the naked eye.

Based on this information, traders can assume further price movement and adjust this strategy accordingly.

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How to install 1-2-3 Pattern Fibonacci Breakout Forex Trading Strategy – MT5?

  • Download 1-2-3 Pattern Fibonacci Breakout Forex Trading Strategy – MT5.zip
  • *Copy mq5 and ex5 files to your Metatrader Directory / experts / indicators /
  • Copy tpl file (Template) to your Metatrader Directory / templates /
  • Start or restart your Metatrader Client
  • Select Chart and Timeframe where you want to test your forex strategy
  • Right click on your trading chart and hover on “Template”
  • Move right to select 1-2-3 Pattern Fibonacci Breakout Forex Trading Strategy – MT5
  • You will see 1-2-3 Pattern Fibonacci Breakout Forex Trading Strategy – MT5 is available on your Chart

*Note: Not all forex strategies come with mq5/ex5 files. Some templates are already integrated with the MT5 Indicators from the MetaTrader Platform.

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