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How To Trade Midrange 1-2-3 Reversals (Part 2)

By  +Follow December 9, 2013 1:23PM
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In our first article, we looked at Midrange 50% Retracement Patterns (also known as “1-2-3 Reversals”) for both day and swing trading patterns. In this final article in this two-part series we’ll take a closer look at specific pivot patterns to focus on when using this trading strategy.

Entering 50% “1-2-3 Reversals” With Candlestick Patterns

The best entries for long trades in pivot reversals are those generated by Japanese candlestick signals; specifically hammers and bullish engulfing patterns. When combined with the 50% retracement price action trading strategy, this technique can help traders easily spot entry price action signals to start using.

In Figure 1 Expedia Inc. ($EXPE) there’s a 1-2-3 reversal pattern on the left of this intraday chart. Zooming in to the inset chart, a closeup 1-minute chart, a bullish engulfing pattern is readily observed at just over 63.0. A bullish engulfing pattern is one in which, the second candle in a downtrend reversal pattern completely engulfs the prior candle, which this one does. 

The long entry is set just above the high of the engulfing candle, which in this case would be just above 63.06. This same pattern can be used on swing or position trading charts as well. The key is to wait until after a reversal begins, to prove that price action has in fact reversed course and new buyers are driving price up.  

When using this pattern, a reversal needs to be seen first (preferably with larger volume on the right side of the reversal) prior to getting into the trade. It’s not a “1-2-3 Reversal” unless there’s some valid pivot long price action first.

Guessing at whether or not something will bounce at a 50% level is risky and should be avoided; it’s much smarter to wait until a genuine long reversal is seen, preferably with both candle and volume patterns, before getting into the trade.    

Swingtrading with Major Moving Averages, Hammers and Midrange Reversals

Using a 90-day chart, it’s helpful to plot the simple 50, 100 and 200 moving average lines (Mas), to identify major trend strength, pivot levels and trading signals. In Figure 2 Mattell Inc. ($MAT), we begin the start of the 1-2-3 pattern at $43, just as it breaks above the 100 blue MA line. 

Now we wait to see when the major 50% pullback occurs. In this chart, that begins Nov. 1, pulling back from a high of 46 down to the midrange reversal of $44.5 area. Finally, we look for a bullish candle reversal pattern; in this case we saw the hammer on Nov. 8, and set a long entry above the high of the hammer.

This is a good example of an advanced use of the technique. Once you begin to spot these recurring patterns, it’s a matter of developing a smart trading approach that capitalizes on price action as it begins to go in your favor. From a trade management standpoint, it’s often useful to scale in (also known as “position sizing”) to winning trades once they’ve moved at least two points in your favor.  The entry trigger should be above the prior high of the 1-2-3 pattern, and at least $2 above the initial entry (whichever is furthest up).  In this example, the initial entry in Figure 2 would be just above the hammer high, over $44.7, with a second entry trigger at (44.7 + $2) = $46.7.

Final Tips On Using the 50% “1-2-3 Reversal” Patterns For Trading

When uncertain as to whether a trading chart matches this pattern, it’s helpful to see how wide and “clean” the chart pattern is, and only trade those with strongest patterns. Where traders get into trouble is misreading charts, or overtrading choppy uncertain chart patterns.  Developing professional pattern recognition skills takes many years of practice, which is why it’s a good idea to keep a trading journal and do a lot of papertrading/demo account trading when testing out this (and other) new strategies.

It’s also smart to use this pattern in combination with other core breakout and pivot trading patterns, to develop an array of skills to use together.  This pattern recurs so often, like other classic Western patterns (cups, pennants, ascending triangles), it’s a very useful momentum day and swing trading techniique to add to one’s personal trading arsenal.  

Ken Calhoun is a trading professional who has traded millions of dollars of equities since the 1990s, and is the producer of multiple award-winning trading courses and video-based training systems for active traders.  He is a UCLA alumnus and is the founder of TradeMastery.com and DaytradingUniversity.com, popular online educational sites that reach tens of thousands of active traders worldwide.   ###

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.


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Results for EXPE
WeezyMiyagi
31 Oct 14 18:26:15
@GeorgePrimpas @GI_Research $expe sympathy play eh
TalkMarkets
31 Oct 14 18:22:58
Morning Call $WY $C $MHK $FLR $LYV $SPF $EXPE $MYL $GRPN $SBUX $CCI http://t.co/J1fWDHmnFW
Amigobulls
31 Oct 14 17:29:07
$EXPE Room night growth and Air travel to drive Expedia's Q4 performance. http://t.co/CP6uKiSJap
Fa$tlane $tocks
31 Oct 14 17:05:39
Will This Price Target Increase Help Expedia (EXPE) Stock Today? Today 08:31 AM http://t.co/F1ncodFtGA $EXPE http://t.co/VKthCAN7C5
SwingTradeBot
31 Oct 14 16:39:06
Back above their 50-day moving averages - $INTC $HPQ $CSOD $GPRO $XOM $JBLU $SCHW $LNKD $EXPE $YUM $ARUN $PCLN $BITA http://t.co/KxsyVV6we5
12Stocks.com
31 Oct 14 16:21:42
MidCap #Stocks Performance $GRPN $LNKD $FCS $FSL $MCHP $ADI $EMN $ATML $INCY $TSO $SGEN $AVGO $EXPE $LLTC more@ http://t.co/tf79gD96D3
12Stocks.com
31 Oct 14 16:21:00
S&P500 #Stocks Performance $MCHP $ADI $EMN $TSO $EXPE $LLTC $MHK $TXN $PCLN $MU $STX $SNDK $GME $MYL $KLAC more@ http://t.co/RPeaHBZz9y
12Stocks.com
31 Oct 14 16:20:23
Nasdaq100 #Stocks Performance $ADI $AVGO $EXPE $LLTC $TXN $MXIM $PCLN $MU $STX $SNDK $MYL $KLAC $NXPI $AMAT more@ http://t.co/YdSIjG11yN
FinSentS SP500
31 Oct 14 16:11:51
$EXPE:US Analyst Upgrades: Expedia Inc, GoPro Inc, and Yahoo! Inc. #EXPEDIA INC #SP500
Ticker Report
31 Oct 14 15:30:07
Investors Purchase Large Volume of Call Options on Expedia $EXPE http://t.co/vMB1nhWLRP
Fa$tlane $tocks
31 Oct 14 15:24:15
Expedia (EXPE) Earnings Report: Q3 2014 Conference Call Transcript 10/30/2014 10:45 PM http://us.rd.yahoo $EXPE http://t.co/ez4n426eOm
US Banking News
31 Oct 14 15:14:07
Expedia Sees Unusually Large Options Volume $EXPE http://t.co/X7sp0nhmS4
US Banking News
31 Oct 14 14:33:55
Expedia Shares Gap Up After Earnings Beat $EXPE http://t.co/A7wjoQt0Gh
Clark Joseph Kent
31 Oct 14 14:22:31
Commented on StockTwits: What prompted you to pick 'em up yesterday at .17? $EXPE earnings? Upcoming $PCLN earnin... http://t.co/8hQ6WUB8CY
Sleek Money
31 Oct 14 14:21:05
Expedia Shares Gap Up After Earnings Beat $EXPE http://t.co/zWvDMPjHh4
361 Capital
31 Oct 14 14:19:16
Roses in the Market Today: $SPY $DIA $IWM $EWJ $SMFG $LNKD $MELI $GPRO $EMN $EXPE $MCHP $PPG http://t.co/MDUVIyvf7r
Bidness Etc
31 Oct 14 14:16:31
#Expedia Jumps On Strong Earnings http://t.co/BgYhXa5pnB $EXPE
Christopher Simons
31 Oct 14 13:54:45
RT @theflynews: Oppenheimer thinks the #Earnings results for $EXPE indicate good things for $PCLN next week. Analysis here: http://t.co/gGi…
Ticker Report
31 Oct 14 13:45:42
Expedia $EXPE Releases Quarterly Earnings Results, Beats Estimates By $0.19 EPS http://t.co/J4MUjJfDcL
Day Trade Experiment
31 Oct 14 13:10:00
SELL $EXPE @$85.19 for 6.42% gain
StockCharts.com
31 Oct 14 13:08:20
Today's Top 5 Technical Gainers among Large Cap Stocks: $EXPE, $PPG, $TXN, $LNC, $NVDA http://t.co/ctFzkw6tom #sccrankings #stockcharts
Forex  News Insider.
31 Oct 14 13:02:47
Expedia pops following Q3 beat; PCLN and TRIP also outperform http://t.co/BcfUnoox8v $EXPE $LONG $PCLN $TRIP
Dan
31 Oct 14 12:46:35
$EXPE OI for maturity 10/31/2014. 75.00 Highest put. 79.00 Highest call. http://t.co/LC2leiW4ZJ
Daily Contracts
31 Oct 14 12:04:01
Real-Time feed of company contracts, original agreements and executive updates from Expedia $EXPE http://t.co/oFcXxF58ZK
The Fly
31 Oct 14 11:56:23
Oppenheimer thinks the #Earnings results for $EXPE indicate good things for $PCLN next week. Analysis here: http://t.co/gGiNSKEt3r
kenr0966
31 Oct 14 11:46:13
RT @OMillionaires: $PCLN back over $1200, first time since 9/9/2014 ~~~ $EXPE $TRIP
Derald Muniz
31 Oct 14 11:43:12
Commented on StockTwits: this Buy Stop on $EXPE has triggered http://t.co/XZuu9vyLDB
CapCube 2.0
31 Oct 14 11:42:01
Of course it is the bubble stocks w/ crazy valuations flying the most $LNKD $GPRO $AMZN $PCLN $EXPE $NFLX etc - f-ed up tape paint job
Xetsu
31 Oct 14 11:37:19
$PCLN gets more love off $EXPE earnings than $EXPE itself
HotKeyTrading
31 Oct 14 11:30:04
Unusual Options Activity: Puts: $EXPE $SBUX $USO $BIDU $COH $FSLR $WYNN $TNA $TWTR $COP $AMZN $GILD $MMM $UPS $YELP http://t.co/XQITF0lRKD
Alpha Maven
31 Oct 14 11:24:31
RT @IBDinvestors: Expedia stock gains altitude late as it kicks off travel site earnings reports http://t.co/KnvhuBpR4L $EXPE $BABA
PrivateCapBlogger
31 Oct 14 11:21:45
RT @IBDinvestors: Expedia stock gains altitude late as it kicks off travel site earnings reports http://t.co/KnvhuBpR4L $EXPE $BABA
US Banking News
31 Oct 14 11:18:40
Expedia Given Buy Rating at Benchmark Co. $EXPE http://t.co/SiKWrYdZvs
InterCooler
31 Oct 14 11:17:42
Expedia’s “Buy” Rating Reaffirmed at Benchmark Co. $EXPE http://t.co/sD96EI8k0o
US Consumer News
31 Oct 14 11:16:55
Expedia's buy rating reiterated at Benchmark Co.. $97.00 PT. http://t.co/NSz0poyMEF $EXPE #EXPE
Analyst Ratings
31 Oct 14 11:14:39
Expedia's buy rating reiterated at Benchmark Co.. $97.00 PT. http://t.co/PsOiFEPL5L $EXPE #EXPE
Option Millionaires
31 Oct 14 11:08:26
$PCLN back over $1200, first time since 9/9/2014 ~~~ $EXPE $TRIP
Sleek Money
31 Oct 14 11:02:35
RBC Capital Reaffirms “Hold” Rating for Expedia $EXPE http://t.co/ZOzsf2zdEr
Sleek Money
31 Oct 14 11:02:34
Expedia Earns “Neutral” Rating from Credit Suisse $EXPE http://t.co/WlT014EMcp
Stock Signaling
31 Oct 14 11:02:28
Movers and Shakers: Trading on Major News: $AEGR $WY $AVIV $LNKD $BUD $TSO $OHI $WU $NEM $ABX $EXPE $GG $GRPN $ABC $TTWO #stocks #nyse #mkt
Binary System
31 Oct 14 10:58:26
RT @tymorapro: $EXPE: 1mRunaway+:7 [+5%,2.1%offLo], News, 3:3Accel+, allTFs+; TLM:0.9; ILM:1.0, PrvClGap+[+4.3%], 1WkHi+, DyVol:4.27M:0.7x:…
Ticker Report
31 Oct 14 10:58:00
Expedia Rating Reiterated by Credit Suisse $EXPE http://t.co/Du31W3uanM
Alexander Morris
31 Oct 14 10:53:02
$EXPE: 1mRunaway+:7 [+5%,2.1%offLo], News, 3:3Accel+, allTFs+; TLM:0.9; ILM:1.0, PrvClGap+[+4.3%], 1WkHi+, DyVol:4.27M:0.7x:1x,
Media Sentiment
31 Oct 14 10:44:58
$EXPE received a new alert. Find out why at http://t.co/5udYd0Ofs6 #stocks #daytrading #trading #mkt #NYSE #NASDAQ #markets 396
PrivateCapBlogger
31 Oct 14 10:42:55
Expedia pops following Q3 beat; PCLN and TRIP also outperform $EXPE $LONG $PCLN $TRIP http://t.co/WFiNcvUTjE
Quantpost Service
31 Oct 14 10:42:27
$EXPE $PCLN News: "Expedia pops following Q3 beat; PCLN and TRIP also…" http://t.co/PUb5Ds7Ha6 Board view: https://t.co/m6YV2hXmVN
MarketCurrents
31 Oct 14 10:42:26
Expedia pops following Q3 beat; PCLN and TRIP also outperform http://t.co/7STAJPdFW1 $EXPE $LONG $PCLN $TRIP
Media Sentiment
31 Oct 14 10:24:53
$EXPE received a new alert. Find out why at http://t.co/5udYd0Ofs6 #stocks #daytrading #trading #mkt #NYSE #NASDAQ #markets 388
Trefis.com
31 Oct 14 10:20:14
TripAdvisor Poised For A Strong Q3'14 Backed By Better Platforms, Aggressive Expa... http://t.co/exHpx65MnP by Trefis Team $TRIP $EXPE $PCLN
Shiraz Lakhi
31 Oct 14 09:52:23
Most ACTIVE consumer #stocks in-play / up on STRONG volume $GRPN $COLM $TUES $CTHR $EXPE ++ (click "View") http://t.co/hz2Vq1igPR
				
				
By  +Follow December 9, 2013 1:23PM
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