You will need to be familiar with identifying chart price trend like uptrend and downtrend to better recognize a 1-2-3 chart trading pattern. Keep in mind that an uptrend is a series of higher high and higher low on prices while a downtrend is a series of lower high and lower low on prices, master this and it will become handy on your trading.
The 1-2-3 chart trading pattern is a reversal chart pattern; That is why it should always be preceded by a trend, it could be from an uptrend or from a downtrend. 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.
It will normally start when a trend slowly turns to a trend less movement or sideway move, this happen when it stop registering higher high in an uptrend or stop registering a lower low in a downtrend. 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.
Once you have the price inside the trading range mark recent high before the failed higher high as “1” then the low that come next as “2” and the failed higher high as “3”. This is the same for the steps in a downtrend and this is the main component of the 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 highly effective if you take into consideration oscillator signals for additional confirmation particularly stochastic and MACD.
Your price target will be on the next Fibonacci levels or MAs or better yet a established support or resistance level and because this is a quick trade you should be profitable in the next few minutes and you should quickly move your stop loss to break even or exit the trade if still not on the green zone after a few minutes. You can use this in the hourly time frame down to the one minute chart of course the higher the time the higher its reliability.
No trading pattern is 100% flawless there will be times that it will not work as plan, it always best to protect yourself at all times. Practice makes perfect, that is why you will need to practice trading any pattern you put into your trading arsenal, once you get familiar with the nature of a pattern you start to understand how it moves, how it behave and you start to have a deeper understanding on the psychology behind the trading pattern and start to take advantage of the opportunity presented to you by such trading patterns.