123 Pattern

The 123 pattern is one of the most commonly occurring reversal formations. It is relatively easy to identify and apply in trading. However, it appears very frequently, which is why an additional filter is required to determine whether the pattern is suitable for trading.

Since the 123 pattern is a reversal setup, it works best when combined with trendlines, support and resistance levels, and other tools, as these act as an additional filter.

Contents:

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How the 123 Pattern Forms

After point (1) is formed, the price moves to point (2), then corrects to point (3), which should not go beyond point (1). Once the correction is complete, the price resumes its movement toward point (2), breaks through it, and continues in that direction.

123 Pattern – Bullish Reversal

123 Pattern – Bearish Reversal

How to Trade the 123 Pattern

There are typically two approaches to entering a trade based on the 123 pattern:

1. A conservative approach – enter the trade when the price breaks through point (2).

Breakout of Point 2

2. An aggressive approach – enter the trade at the anticipated formation of point (3). Keep in mind that in this case, the 123 pattern is not fully formed yet.

Entry at Point 3

The stop loss should be placed beyond point (1) or point (3), depending on where the trade is entered.

Where to Trade the 123 Pattern

The 123 pattern can appear very frequently and in many places on the chart, so it is recommended to focus only on formations that occur in the following key areas:

123 Pattern in the Trendline Zone

The price bounces off the trendline and forms the 123 pattern.

123 Pattern on the Trendline

The price breaks the trendline and forms the 123 pattern.

123 Pattern After Breaking the Trendline

123 Pattern at the Key Level

The price bounces off the key support level and forms the 123 pattern.

123 Pattern at the Key Level

123 Pattern After the False Breakout

The price makes a false breakout, and the 123 pattern forms afterward.

123 Pattern After the False Breakout

Related Posts:
  1. ⚡ Double Top and Double Bottom
  2. 🌐 Head and Shoulders
  3. 📜 False and True Breakouts
  4. 💱 Trend
  5. 👍 Sideways Market

Comments

tajim9978
tajim9978 2026-01-01 15:38:32 #
The 123 pattern is a cornerstone of trading. Mastering just the 123 pattern can be very profitable. The key is to learn to recognize it in the right areas on the chart and trade only the most reliable setups.
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