To help you better spot the 1-2-3 chart trading opportunity, you will need to be familiar with identifying uptrend and downtrend in the price chart. The basic chart pattern of an uptrend is a series of higher high and higher low and for downtrend a series of lower high and lower low.

1-2-3 pattern is one of the popular reversal trading patterns in forex trading. Therefore you will need to have an established trend, whether uptrend or downtrend to have a valid 1-2-3 pattern. It will be easier for you if you can easily spot a trend since the 1-2-3 chart pattern appears near the end of the trend or when the trend start to lose steam and starting moving sideways.

1-2-3 chart trading pattern start after an uptrend or downtrend pauses and stop registering higher high or lower low in an uptrend and downtrend respectively. The first thing you should do is to connect all the recent high and the recent low to establish a sideway price range. Once the sideway trading range is set and established using the two horizontal line you should start marking the 1-2-3 points in the chart.

Mark number "1" the recent high before the failed higher high and mark the next low as number "2" and lastly the failed high should be marked as number "3". You now have the main points needed for a 1-2-3 chart trading pattern.

The trading signal will be generated once the price moves below or above the price leveled as “2”. A move downward to break the recent low also marked as number "2" is a sell signal in an uptrend. And a price move to break the recent high or the point mark as number "2" in a downtrend is a buy signal. It is best if you will consider the current oscillator signal and direction as an added confirmation to the 1-2-3 chart pattern trade.

This is a quick trade that is why you need to place your stop loss 10-20 pips off your entry price and you should already be profitable in the next three candles then quickly move your stop loss to break even, target the next nearby moving average, Fibonacci levels or identified level of support or resistance. This is applicable in any time frame but the higher time frame should provide a more reliable move.

This pattern is not cast in stone and can some time result to false break out, always trade with a good risk reward ratio, this will make you profitable over the long term. In anything you do the more times you do it the more you become more convenient doing it, this is the same with trading patterns, once you get to trade a certain pattern more often you will get to be more familiar with its nature and become more confident in trading such patterns.

Author's Bio: 

Learn more about good patterns you can utilize for trading through visiting learn day trading. Additionally you can check out swing trading strategies for additional useful trading guidelines.