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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
Stockaholics
22 Oct 14 11:14:22
Our Penny Stock Picks Gained 371% In 2 Weeks! Get Our Next Pick Early: http://t.co/z2noBUWrEP $KLAC $EXPE $HSIC
12Stocks.com
22 Oct 14 08:52:21
Nasdaq100 #Stocks Performance $BRCM $YHOO $MDLZ $NFLX $GOOG $MAT $GOOGL $EBAY $NTAP $GMCR $EXPE $ROST $BBBY more@ http://t.co/YdSIjG11yN
Xetsu
22 Oct 14 06:23:46
Been wrong last few days, market rebound has been relentless. W/L today $BABA $TWTR $EXPE $NFLX
Quantpost Technology
22 Oct 14 03:54:54
$FB $GOOG News: "Priceline Is On Sale $EXPE $FB $GILD $GOOG $MA $V $PCLN …" http://t.co/W7782z6xZh Board view: https://t.co/WGBEu6iRzi
Quantpost Service
22 Oct 14 03:54:54
$EXPE $PCLN News: "Priceline Is On Sale $EXPE $FB $GILD $GOOG $MA $V $PCLN …" http://t.co/tDtldCCBsl Board view: https://t.co/m6YV2hXmVN
Quantpost Healthcare
22 Oct 14 03:54:54
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Quantpost Financial
22 Oct 14 03:54:54
$MA $V News: "Priceline Is On Sale $EXPE $FB $GILD $GOOG $MA $V $PCLN …" http://t.co/PUCIPZkvcm Board view: https://t.co/NLGIoiaK9Z
Seeking Alpha
22 Oct 14 03:54:53
Priceline Is On Sale http://t.co/RXqFGlE3Sc $EXPE $FB $GILD $GOOG $MA $V $PCLN
Hereitfirst
21 Oct 14 21:10:11
how to trade $ACHN $DDD $VJET $LAKE $APT $IBIO $GPRO $NKE $EXPE $FDX $UA $MNKD $ACRX $FB http://t.co/uTZpFW8a4K
12Stocks.com
21 Oct 14 16:01:51
Nasdaq100 #Stocks Performance $ILMN $SNDK $TRIP $AVGO $DISCA $NXPI $TXN $VIAB $MU $VRTX $SYMC $EXPE $BIIB more@ http://t.co/YdSIjG11yN
Becky Hiu
21 Oct 14 14:34:43
$EXPE $TRIP all doing well too
doco
21 Oct 14 13:30:27
@WallStJesus @SagaciousTrades Any Big Options trades in $expe lately? Been very quiet since 9/30.
Stockaholics
21 Oct 14 13:17:48
Our Penny Stock Picks Gained 371% In 2 Weeks! Get Our Next Pick Early: http://t.co/z2noBUWrEP $KLAC $EXPE $HSIC
ClosingBell
21 Oct 14 13:10:05
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12Stocks.com
21 Oct 14 12:59:31
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Trader Bob
21 Oct 14 11:05:29
Commented on StockTwits: Yes, every day about 10:10 New York time $EXPE was posted yesterday hrs B4 it was hit.... http://t.co/GbYekv0iJK
Shan Shan Xie
21 Oct 14 08:14:37
$EXPE Held gap this a.m. over the 200dma.. $83 is a reasonable target https://t.co/mLw0onOOY3
Traders Nation(tm)
21 Oct 14 00:52:48
RT @stockchartscom: Today's Top 5 Technical Gainers among Large Cap Stocks: $GCI, $HAS, $EXPE, $GME, $TSO http://t.co/ctFzkw6tom #sccrankin…
4-traders.com
20 Oct 14 23:10:22
Expedia : Sets Date to Issue Third Quarter Results http://t.co/HKXlRJh76A $EXPE
Hereitfirst
20 Oct 14 22:13:27
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holycharts
20 Oct 14 20:00:03
Sell-signal detected for 21 stocks: $LB $BXP $MDLZ $APC $NFLX $CMA $EIX $NOV $EXPE $HAS $TWX $OKE $KIM $GPS $TE $PSX $DVN $CHRW $TSO ...
Eyang Sukur
20 Oct 14 19:05:44
RT Chayton Falke ChaytonFalke :#Nasdaq100 Last #Trading Day Exit #3: COVERED $EXPE for a 11.14% #gain! SHORT 7 days! #EXPE #forex #stock...
Chayton Falke
20 Oct 14 19:05:08
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12Stocks.com
20 Oct 14 16:02:28
S&P500 #Stocks Performance $TSO $LUV $GCI $HAS $DAL $CELG $QEP $COV $GMCR $IP $NFX $LEN $EXPE $MNST $HP more@ http://t.co/RPeaHBZz9y
12Stocks.com
20 Oct 14 16:01:55
Nasdaq100 #Stocks Performance $CELG $GMCR $EXPE $MNST $MU $ISRG $SPLS $MAR $TRIP $CHTR $COST $AMGN $TSCO more@ http://t.co/YdSIjG11yN
Gary Kaltbaum
20 Oct 14 15:10:42
RT @cvpayne: lots of news big moves in market (Dow up 19 was huge) @FoxBusiness please watch take notes make money my stock idea $EXPE
Michael G #TGDN
20 Oct 14 15:08:27
RT @cvpayne: lots of news big moves in market (Dow up 19 was huge) @FoxBusiness please watch take notes make money my stock idea $EXPE
THOMAS
20 Oct 14 14:58:34
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William E Blanken Jr
20 Oct 14 14:57:51
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Charles V Payne
20 Oct 14 14:56:53
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Dennis Hong
20 Oct 14 13:56:36
According to $EXPE bookings data, domestic Thanksgiving flight fares are up 17% this year versus 2013. No $Ebola impact here.
Stockaholics
20 Oct 14 13:35:03
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StockCharts.com
20 Oct 14 13:08:46
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12Stocks.com
20 Oct 14 13:00:02
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12Stocks.com
20 Oct 14 12:59:28
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Daily Contracts
20 Oct 14 11:27:01
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ThinkingProfit.com
20 Oct 14 11:15:57
$EXPE: 3 open, suited signals indicate continued price decrease beyond average holding times. http://t.co/chPFJFelop
Chayton Falke
20 Oct 14 10:05:07
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Pristine Trading
20 Oct 14 09:19:24
$LULU, $EXPE, $SAVE, $APC = strong watches
Stockaholics
20 Oct 14 09:18:54
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12Stocks.com
20 Oct 14 08:51:28
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Pristine Trading
20 Oct 14 08:17:50
$EXPE setting up a nice breakout over 76.50
Becky Hiu
20 Oct 14 07:04:33
Commented on StockTwits: $EXPE too? Haha http://t.co/650TVv16EM
BV Services
20 Oct 14 05:12:17
$EXPE Expedia Holidata: 21 Million Americans to Fly in Fourth Quarter, Thanksgiving and Christmas Air .. http://t.co/uj8fZMruRD
Pzaa...Guy
20 Oct 14 05:07:07
$EXPE - Expedia Holidata: 21 Million Americans to Fly in Fourth Quarter, Thanksgiving and Christmas Air Fare http://t.co/KNg5F0jr9W
NASDAQ
20 Oct 14 05:06:21
$EXPE - Expedia Holidata: 21 Million Americans to Fly in Fourth Quarter, Thanksgiving and Christmas Air Fare http://t.co/fAhBfJTk9L
4-traders.com
19 Oct 14 22:35:03
Expedia : and Egencia Issues Mobile Index http://t.co/0GhgLYW1FX $EXPE
Stockaholics
19 Oct 14 20:30:25
IBIO Closed Up 69.84% After Our Penny Stock Alert! New Picks Coming: http://t.co/OG2rloNNni $KLAC $EXPE $HSIC
Stockaholics
19 Oct 14 17:48:42
IBIO Closed Up 69.84% After Our Penny Stock Alert! New Picks Coming: http://t.co/U6uEs9ncMA $KLAC $EXPE $HSIC
Big Money
19 Oct 14 15:25:04
ALL NEW TO $EXPE please be aware of the info!!!! http://t.co/RGtTE3UNf4
				
				
By  +Follow December 9, 2013 1:23PM
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