The Forex 123 SetupThe Forex 123 setup is a common technical signal that is widely used as an entry indicator for a Forex system. This chart pattern is quite common and once you recognize it, you will see it everywhere on your price chart. The fact that you do see it everywhere, implies that it should be used with other signals.
This setup works best if the trend is changing, but it can work for other situations too. This setup can be used for any time frame, but generally longer time frames are more reliable, as they tend to filter out some of the randomness of the market.Watch for the price to pull back from the low of point 1 to point 2. It should then continue in the initial direction to point 3 before it reverses again. An important thing to remember is that point 3 must be higher than point 1. Ensure another indicator such as MACD, RSI or Stochastic (MACD shown here) is used for confirmation of the short term trend. The Forex 123 setup is complete once the price rises from point 3 past the level of point 2. The buy signal is the combination of the price passing through level 2 and the signal from your indicator. This method can also be used in the reverse of the example shown, where the initial trend would be up, with the end result being a down trend.
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