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123 Formations - Technical Analysis

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123 Formations - Technical Analysis

The 123 formation anticipates a change in trend. There are both top and bottom formations.

123 Top Formation 123 Top Formation
The 123 top formation anticipates a change in trend, from up to down, on a break below the number two point. This formation is easily identified because the number 1 point is the annual price high for the contract.

To trade a 123 top formation, place a sell order on a break down past the 2 point. Then place a stop loss order just above the 1 point (an industry standard) or just above the 3 point (a more conservative stop loss placement).

123 Bottom Formation 123 Bottom Formation
The 123 bottom formation anticipates a change in trend from down to up on a break above the number 2 point. A 123 bottom formation is easily identified because the number 1 point is the annual price low.

To trade a 123 bottom formation, place a buy order just above the 2 point. Then place a stop loss order just below the 1 point (an industry standard) or just below the 3 point (a more conservative placement).