1-2-3-Formations and Ross Hooks

[SOCRATES]

socrates - you state that you do not know what instrument this is that you are talking about. yet you start to make observations about its volume (at a time which is clearly the open) and how that relates to the other proceeding (overnight) volume on the chart. you then state that the impact of this volume is obvious to you.

well, here is something that is obvious to me:

as you state to not having a clue as to what the instrument is, you would have no way of knowing if the volume on bar 15 is high, low or normal for the opening for that asset. therefore, without knowing what you are looking at, you have no basis to make your judgement upon - whether or not it is heavy or light accumilation. so, your observations MUST/ARE being made in hindsight. you then say that this is obvious to you, as if you are somehow gifted in some way! well, we are all gifted with the ability to make great market calls in hindsight, but that dont pay the bills.

i must admit that i was quite impressed by your posts when i first came across them on this thread. having looked into your past posts (especially the one where you claim to call the market in real time - which you commented on), well it would seem that again your skills seem to fall short. your calls are clearly incorrect and quite a way off. i can assure you, if you had traded your calls you would probably have lost money - unless used fairly wide risk parameters - something i believe you (wisely) dont agree with from previous posts. i have checked the historical dax tick data for the time in question on my cqg terminal (cqg is widely regarded to be the most accurate data source in the industry, for those who are unfamiliar with professional trading platforms)

i would appreciate it if you would stop being so aggressive to mr ross who has made the good attempt to help people on this thread. i appreciate you may not like him stealing your thunder so to speak, but mr ross seems to talk plain sense and does not make inaccurate claims of his ability.

sorry for making my first post a bit negative, but i hope something positive will come from it.

i am afraid that my trading activities take up most of my time, so i can not guarantee a reply. ( i am a professional scalper, not a professional poster)

One is always grateful to an anonymous newbie critic who offers advice, and who chooses to take refuge behind that anonymity. You ought to know, that all instuments that are traded and posses liquidity and have consistent turnover broadly respond pricewise in a similar way when pushed or pulled by participation or non participation.

It is therefore not difficult at all to call any instrument, and it does not matter what it is, provided the price is declared accurately on time and that the volume is correct. I am not going to expand on this because to expand further would consitute a lesson, which I am not willing to give you.

Suffice it is to say that the difference between one liquid and actively traded instrument and another is the result of having different followings, and not one of supply - demand principles or detail. So in this respect you are referring to your own frame of reference, which is not mine.

None of my calls are incorrect, in fact they are alarmingly accurate notwithstanding the difficulty of posting on a website whilst monitoring the progress of a move elsewhere at the same time, without considering the fact that often the post refuses to appear because of some conflict attributable to the system not allowing a second post in the same minute.
If you were doing this and taking an overseas call at the same time you would need all the extra pairs of hands you could get your hands on , but I do it just with what I've got, probably the same as you.

We are all familiar with CQG. What you are talking about is a datafeed, not a platform.
These kind of comments are not helpful to members not familiar with these details.
You are quite right in your statement that I advocate the use of very tight stops rather than the contrary. If you are who it is suggested you are I have a book you wrote in which you advocate the use of 50 or 60 point stops if I remember correctly. If anything is nonsense, that has to be it.

I am not aggressive to Mr Ross, but anyone under pressure is likely to get impatient with something not clearly explained. I hope you are not going to labour the point as my posts above are a clear attempt to clear the misunderstanding that arose both to him and to Roberto.

I cannot be more helpful. No one is able to steal any thunder from anyone. Thunder is a natural phenomenon, and the result of release of static electricity from a Cumulonimbus Cloud overcharged with positive and negative charge, and not of human origin, but of nature not connected with humanity. Nor can human beings be the owners of a meteorological phenomenon. This is regardless as to whether you live at the top of a mountain or not.

Everything I point out is for your benefit, not mine. I do sincerely hope he posts something which may be of benefit to you, as you are obviously interested in what he has to say.

I am pleased to hear you are a scalper, and hope you are successful with it and wish you well in your endeavours, 1 lot wonder.

But I am sorry, I have no further time to devote to you, since I am already very busy and preparing to travel tomorrow.

 

[SOCRATES]

As I am delaying my trip by a few days and I at this moment cannot fix the departure date precisely but it will be within a week or so, I have time to post .

What you say about honesty with oneself is perfectly correct, because it is at the heart of trading.

It has to do with acceptance and open mindedness of what is laid out in front of us for us to deal with or not. This involves the excercise of choice. But it goes far beyond that.

In order to maintain a level head and not be corrupted by money a specific mindset has to be created to deal with trading.

What you are describing is a trading persona, specifically constructed to deal with trading. I have made huge efforts in the past to help members realise that this is a priority if they are to progress, but sadly, very few realise or accept this is true or indeed strive to achieve self mastery in this way.

I dedicaated a whole thread to this topic, entitled "Journey from the Basement", in an attempt to wean people away from what is an imperfect posture towards achieving the correct mental state to deal with the cruel outcomes the market delivers to the unwary and the unprepared and so on.

Because all of this is an abstract concept, it makes it additionally difficult to put a tangible reality on it for people to relate to.

I tried to put the message across in many different ways, having to resort to different devices, including drama, humour, parables, straight tallking, but to no avail, I am sad and disillusioned to tell you.

It only served to winkle out some idiots who, if they themselves do not understand the value of what is laid before them, seem determined to prevent all the others from progressing. Such is the nature of public boards and I totally agree with your comments in this regard.

I therefore got fed up and gave up with Journey form the Basement and stopped. I decided then not to deal with the First Floor, the Second Floor and all the other floors remaining in the complete structure of knowledge that a trader needs, built around his own character, which is what money cannor buy or otherwise.

This is because I have taught many people, and as a consequence of my experience, which is considerable, I can tell you that only the idividuals with the right character ulitmately succeed.

For the rest I take on board what you say and agree. Many of these concepts take a long time and a lot of effort to master. People are not able to equate the amount and concentrated persistence of effort required as the kind of effort required is not of the quality and quantity expected. It is very difficult to explain in tangible terms what is an intangible concept.

I can see exactly at the juncture that you are now. That is because I have trodden that road myself, alone,
so I can now more clearly see where you are coming from. This is far above what martin has to offer so you need not explore that route.

Going back to the topic of CQG. I was not aware they had tacked on an execution platform. This datafeed was offered to me in 1996. I was then running BIS, Tenfore, Signal and Marketeye each for different purposes.

I considered CQG to be expensive, particularly in the light that at that time they did not offer volume, wither in the cash markets or in derivatives. If I remember correctly at the time the subsciption fees were in excess of £10,000 per annum, more than double or treble the nearest competitor except of course Reuters that was absolutely astronomical at the time.

Kind Regards,

 

[Newtron Bomb]

Hiya folks

Not posted for quite a while.

1-2-3 formations are present and VERY tradable on the FX world on multiple TF's across all the pairs.

This thread had a lof of promise to develop peoples views to the potential of this pattern.

The pattern (for me) needs to be very clear and ideally with a trend line break or other confirmer that a trend change is in force. However, the price pattern alone can be traded just as well.

In effect with this pattern you are trading the first pullback after after a trend change. Who actually cares what its called as long as you can spot it and trade it. Everyone is going to apply it slightly differently. For me the 1-2-3 is a reversal which is triggered when point 2 is broken then am looking for a pullback.

I have traded this pattern off the UK open at 8am for quite a while. I get the trend bias from the 1-2-3 during the Asian range (midnight-ish to 8am-ish) then i'm looking for a pullback after the respective 2 aspect or Asian range is broken. Simple, efective works for ME. The sooner people try to find what works for them the sooner they can go full time and retire.

I have recorded a video detailing this particular set up (and many others) at my website (link is in my profile)

Happy Trading
NB

 

[pb]

NB,
Trendline break along with 123 formation is also a requirement for Kevin Haggerty, in his flavour of 123. I have studied (briefly) both JR and KH variaitons of 123 formation. KH have some more criteria in addition to the basic formation:

1. volume increase from point 1 to point 2
2. Fib retracements from point 2 to point 3
3. short-term trendline break after point 1
4. a certain minimum number of bars between points 1 and 2, and points 2 and 3.

Both JR and KHpropose traders trick entry. Their money/trade management methods are slightly different but both quite clever.

Edit. Not sure if I just broke about every copyright law in the planet.

 

[Newtron Bomb]

NB,
Trendline break along with 123 formation is also a requirement for Kevin Haggerty, in his flavour of 123. I have studied (briefly) both JR and KH variaitons of 123 formation. KH have some more criteria in addition to the basic formation:

1. volume increase from point 1 to point 2
2. Fib retracements from point 2 to point 3
3. short-term trendline break after point 1
4. a certain minimum number of bars between points 1 and 2, and points 2 and 3.

Both JR and KV propose traders trick entry. Their money/trade management methods are slightly different but both quite clever.

Edit. Not sure if I just broke about every copyright law in the planet.

Interesting. ive played around with a few variations. Volume isnt an option for FX. However with stock I can see the advantage of that pattern requirement and would most likely use it myself. In the past I liked to see about 15-20 bars to develop the complete pattern but ive seen many different sized patterns for me to drop this aspect. generally the good ones will always have 12-15 plus just by the very nature of the pattern. Less than this on one time frame will qualify on a smaller time frame so it is all relative which is why I dropped it as long as the pattern is clear.

 

[Newtron Bomb]

It would be a shame for this thread to go off track and lost in the archives of T2W. A slight attempt at bringing this back on line and a final bump to the top of the stack.

NB

 

[ardhill]

Hi

This is a daily chart of BEA System, a low price stock trading on the Nasdaq.

I am currently in this trade. From my understanding, this is a 1-2-3 formation and I entered using the Traders Trick Entry.

I have shown the 1-2-3 and the dotted white line is where I entered the trade. My initial stop was just beyond the top of the number 3 bar.

If I have gotten it wrong and this isn't a 1-2-3 formation, I would be interested in the correction.

For those interested in my management of this, I like to trade my position in 3 parts. I have already taken profits on my first two parts of the position, and the last third is running with my stop currently at break even. If it continues to go down then great, I will trail the stop down giving it some breathing room. I can afford to give it a bit of space with this stop as I have already banked profit and this is now a 'free' trade. (This is my style, we are all different).

 

[Roberto]

Very nice trade, Ardhill.

Certainly looks like a classic 1-2-3- to me. (Unusual for me to see them with candlesticks; I normally use old-fashioned bars, myself).

You have the same style as me, trying to get the last third as a "free trade". I wish it would happen more often.

To what extent did the shape of the two candlesticks immediately preceding your TTE prompt you to choose that entry?

 

[ardhill]

Very nice trade, Ardhill.

Certainly looks like a classic 1-2-3- to me.

Thanks Roberto

(Unusual for me to see them with candlesticks; I normally use old-fashioned bars, myself).

Actually, I use both. I feel that I can see patterns (such as this one, and S/R areas better) when I use standard bars, but I like candles for seeing the detail of the money flow. And sometimes I can just see something in one type that i didn't in the other. I just couldn't make up my mind which I prefer, so I use both

You have the same style as me, trying to get the last third as a "free trade". I wish it would happen more often.

Yes, they are nice to get when you can. I do sometimes have to deal with the struggle between taking the profit and letting it run though. But, I am working on that part.

To what extent did the shape of the two candlesticks immediately preceding your TTE prompt you to choose that entry?

Do you mean the number 3 bar and the one before?

I won't be too technical, cause I don't know all the technical issues.

I saw the possible trade when the bar before no.3 was being formed, and though it looked good, but still didn't commit myself. When I saw the number 3 bar, I thought it looked a good opportunity as the low was far enough away from the low of no.2 bar to enable TTE and the high was looking good for the pattern.

I saw the no.3 bar forming during the first half of the day and it had a higher 'close' at that time (green bar), but a short body, telling me of a possible reversal soon - another indication of the 1-2-3 working out.

As the US afternoon trading got underway, the bar actually reversed and the second half of the day was almost exclusively down - time to smile and get ready.

The low was not breached by the end of the day, so I left a Stop Market order in to short if / when the low was breached. I felt the chances were good after the cautious higher highs, then the definite downward move in the second half of the day.

The trade of course was executed.

I took profits on 1st third of the position at the end of the big down day. The next day I watched during the open as I was cautious about the support level of $8, as I thought there was some hesitancy at that time, so I took profits on the 2nd part at $8.03.

The overnight trading was fine, lets hope the trading is down again today.

 

[ardhill]

Looks like the 1-2-3 has developed a 'Ross Hook' - pretty appropriate that!

 

[Roberto]

True enough ... not sure how comfortable I'd be shorting it, though, if taken out ... it looks as if there might be some historical support not far below it?

 

[DaveJB]

Looks fair for a run down to $8 though... is 20c enough for you? I'd be inclined to wait for it to get there and then go long, but I've been wrong often enough to suggest I be ignored <g> Big volume a couple of bars back looks like what I tend to think of as the last of the 'determined to short it' crowd failing to achieve their goal - next step being buying to cover successful shorts from 10% higher, and those who tend to buy low deciding it's getting cheap again.
I could analyse a tree and detect a giraffe at times, but that's my 2p worth.

 

[ardhill]

True enough ... not sure how comfortable I'd be shorting it, though, if taken out ... it looks as if there might be some historical support not far below it?

Yep, here is a weekly chart of the stock, you can see it has a bit of history around that area.

Looks fair for a run down to $8 though... is 20c enough for you?

In this occasion, it's not that important actually. I am already in the trade and have already banked profit. I am just letting the last part either hit my stop, which is currently at B/E or travel down a bit further.

I could analyse a tree and detect a giraffe at times

Dave, I think that you and I must have read the same trading book

 

[beeryboy]

When trading 123 formations and hooks, how do you guys define price targets?

 

[DaveJB]

Probably <g>
Part of me says lots of support from all those retests of $8, so it's nice and solid etc etc etc while the other part of me says 'hang on, every time it climbs away it drops right back, somebody is pretty determined it should go through $8....'
I think it's fair to say that extensive analysis has again, unerringly, led me to decide the stock will definitely go up, down, or sideways. To be honest I think wait a bit, then expect to go long, but if not then be ready to short... that's not indecision, it's simply me saying it's better to trade what's happening rather than trying to forecast the future when you don't need to.

As you already have a nice position you are where you need to be, and that's best of all.

 

[Roberto]

When trading 123 formations and hooks, how do you guys define price targets?

Speaking for myself ... (which is best really, not having studied ventriloquism ...) ...

If the trade is in "2 bits", then the first target is defined as "enough to cover all dealing costs and move the stop-loss to break-even on the other half" and the other half just runs with a trailing stop-loss the size of which is perhaps appropriate to the instrument and timing (maybe related to ATR or whatever) until eventually it's stopped out.

If the trade is in "3 bits", then the first target is defined as above, the third is defined like the second part above, and the "middle third" (sometimes known in musical parlance as the "middle 8") is somewhere in-between the two, often something like 12 - 15 pips after the first target is met.

But I don't think there are necessarily any "right answers" to this question. It all depends on lots of things.

I have a young friend (since we're speaking of others as well as of ourselves) who trades these things in a much more simple, easier and arguably better way than I do. She trades them typically (but not always) from 10-minute currency charts (any of about 8 or 9 different currency pairs with no more than 5-pip spreads) and for every trade she enters, she has a fixed take-profit limit of 5 pips and a fixed stop-loss of 10 pips (both including the spread: that's to say, every trade ends with either a net profit of 5 pips or a net loss of 10 pips).

Quite a lot of people will wince at this R:R ratio. Experience has taught her that a few (who are doubtless not making a living from their own trading) will even be insulting and offensive about it. But the fact remains that she's now done over 2,500 trades this way, more than 2,000 of them were successful, and she makes a steady living.

 

[pb]

123 patterns occur in the stock market almost every week. I have been eyeballing all the FTSE350 and smallcap stocks for about a month now. Here are some interesting results.

Admittedly, I haven't entered any of these trades, because I am still getting familiarised.

 

[Effkay]

Nice one mate.....

Would ABF and IMG really be tradable? I don't know whether I would count them as 123 formations? Anyone?

I quite like trading these myself, but like most people I trade them on intraday FX charts

 

[Effkay]

Also...does anyone have a rule to say something like all the 123 points have to have happened within 10bars or some such?

 

[Roberto]

Would ABF and IMG really be tradable?

On the basis of a very quick look only, I wouldn't fancy ABF, but the rest look interesting. With ABF it's not so much the 1-2-3 (which might be "drawn" a bit differently, I agree) but the January 3rd high and fall from it which would put me off a bit. Could be a trade that hasn't got far to go, perhaps?

Also...does anyone have a rule to say something like all the 123 points have to have happened within 10bars or some such?

Lots of people have too many rules, yes. It all depends on the time-scale. In the Joe Ross books there are some interesting examples with the 2-point and 3-point at either end of the same bar.