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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
Marko Hristov
4 Mar 15 00:37:14
Allegiant Travel Boosts Planes And Places For Profit http://t.co/VmZz7c7OG9 @IBDinvestors $ALGT $EXPE $LUV $ALK $JBLU $SAVE
TV_Trading Ideas
3 Mar 15 22:00:03
Expedia in range $EXPE http://t.co/Lp6uJzxYFZ
Anthony
3 Mar 15 19:18:11
RT @WallStJesus: $EXPE put buyer, 875 apr15 $92.5 P for 4.50 -- possibly rolls out pos
$Stocknewsalerts
3 Mar 15 16:46:53
$EXPE New SEC Document(s) for Expedia, Inc. From our Stock News Alerts App
ProTradersNews
3 Mar 15 16:39:02
$EXPE: New Insider Transaction on EXPE by Chief Accounting Officer: http://t.co/72ygV5tRwa
Insider Alerts
3 Mar 15 16:38:11
NEW insider transaction on $EXPE reported a moment ago: http://t.co/NdPR1BTb7j
kevin
3 Mar 15 15:14:14
$expe daily http://t.co/7NWhEikyQ8
Stockaholics
3 Mar 15 13:24:44
Our Stock Alerts Have Gained Over 400% In The Past 5 Weeks! Huge News: http://t.co/knvfKjggSa $KLAC $EXPE $HSIC
John H Armstrong
3 Mar 15 12:15:05
RT @v2ratingsbot: $EXPE looks attractive (rated 6.9 as price is down to 90.22). Price vs ratings chart: http://t.co/Q4x5RF8p3g
v2 Ratings Bot
3 Mar 15 11:52:26
$EXPE looks attractive (rated 6.9 as price is down to 90.22). Price vs ratings chart: http://t.co/Q4x5RF8p3g
cruisedealership.com
3 Mar 15 11:26:09
$PCLN $EXPE $TRIP couldn't resist bought more Travelzoo $TZOO
JE$US
3 Mar 15 11:18:20
$EXPE put buyer, 875 apr15 $92.5 P for 4.50 -- possibly rolls out pos
Lauren Holmes
3 Mar 15 09:32:44
$EXPE and $PCLN are still great winners. Find the next tech ideas at http://t.co/huaLsH8iDZ
Stock Rocket
3 Mar 15 09:29:09
Our Penny Stock Pick On $BYSD Gained Another 80% Today! Get Our New Pick Early: http://t.co/E259yKbTSj $KLAC $EXPE $HSIC
Lauren Holmes
3 Mar 15 09:03:34
$EXPE and $PCLN are still great winners. Find the next tech ideas at http://t.co/huaLsH8iDZ
#HelpYouGetGAINS
3 Mar 15 08:14:03
#Stocks to watch from The Value Line Investment Survey: $LNKD $TWTR $EXPE $YELP $P $FWM $GPRO $XLS $HRS $ATVI $DV http://t.co/nFfgYYtFqL
BreakingStocksNews
3 Mar 15 08:12:02
$FB $EXPE: Aussies know rugby, Uggs and Shiraz. But tech?: http://t.co/hoHUX6yscl
#HelpYouGetGAINS
3 Mar 15 08:09:17
#Stocks to watch from The Value Line Investment Survey: $OWW $EXPE $TRIP $CSCO $WFM $TSLA $RIO $K $NVDA $SKX $CAKE http://t.co/aFQoJ1tRsm
Lauren Holmes
3 Mar 15 07:56:31
$EXPE and $PCLN are still great winners. Find the next tech ideas at http://t.co/huaLsH8iDZ
InterCooler
3 Mar 15 07:48:39
Expedia Given Consensus Recommendation of “Hold” by Analysts $EXPE http://t.co/k6bdv7qGXN
Derald Muniz
3 Mar 15 06:28:56
Expedia goes ex-div on 3/6. $EXPE
BreakingStocksNews
3 Mar 15 03:06:05
$EXPE: Morgan Stanley Analyst Recommendation Update on Expedia, Inc.: http://t.co/HYB4TO6yFC
Stockaholics
3 Mar 15 02:51:44
Our Penny Stock Pick On $THCZ Has Continues To See Gains! Special Update: http://t.co/ZH4BZ571Gt $KLAC $EXPE $HSIC
HotKeyTrading
3 Mar 15 00:30:08
Hedge Funds Trimming: $TDG $ABCO $ADT $DRH $EPE $HAWK $GSK $MAR $PH $PPL $CTAS $MNK $HFC $THC $EXPE http://t.co/kl3VGOukhn #trading #stocks
DailyStockPicks
2 Mar 15 22:34:19
This $100M market cap #biotech #stock has gotten 3 orphan drug designations in 3 weeks $X $EXPE $PX investors read http://t.co/r6XCUw0ZTz
Stock Rocket
2 Mar 15 22:20:12
Our Penny Stock Picks Gained Over 342% In 2 weeks! Get Our Next Alerts Early: http://t.co/eK5z4Y5viW $KLAC $EXPE $HSIC
Trefis.com
2 Mar 15 22:00:09
Weekly Online Travel Agency Notes: Priceline, Expedia, TripAdvisor, Travelzoo, Ct... http://t.co/TfXjDGw8AK by Trefis Team $PCLN $EXPE $TRIP
Pzaa...Guy
2 Mar 15 21:02:04
$EXPE - U.S. Hotel Price Increases Ahead Of Global Average http://t.co/b2Ez0I5RVn
NASDAQ
2 Mar 15 21:02:02
$EXPE - U.S. Hotel Price Increases Ahead Of Global Average http://t.co/A9I2vCdihd
HotKeyTrading
2 Mar 15 19:30:09
Gap Downs: $MPC $GFI $SAVE $HES $HFC $ESV $OSK $KOS $CVX $EXPE $PSX $MUR $IMO $TSO $AL http://t.co/Vv2VEn80mr #stocks #daytrading #finance
Stockaholics
2 Mar 15 17:28:17
Our Penny Stock Picks Gained Over 342% In 2 weeks! Get Our Next Alerts Early: http://t.co/bss5I2HDtf $KLAC $EXPE $HSIC
HotKeyTrading
2 Mar 15 12:30:08
Hedge Funds Trimming: $PH $PPL $CTAS $MNK $HFC $THC $EXPE $RYAM $STJ $VDSI $CNQ $APD $PCRX $LYG $LVNTA http://t.co/kl3VGOukhn #daytrader
Pragmatic Profit
2 Mar 15 11:24:05
Valuation no longer important for $PANW . Options too expensive for me, but even if/when they buy a competitor, stock will rise, a la $EXPE
Lauren Holmes
2 Mar 15 09:15:59
$EXPE and $PCLN are still great winners. Find the next tech ideas at http://t.co/huaLsH8iDZ
HotKeyTrading
2 Mar 15 07:30:08
Gap Downs: $CVX $EXPE $PSX $MUR $IMO $TSO $AL $CHL $SNMX $EOG $NLSN $GLNG $MLNX $VLO $BRKR http://t.co/kl3VGOukhn #stockmarket #dow #stock
Juan Manuel Merino
2 Mar 15 05:39:25
#Airbnb #Business, Challenges Keep Growing http://t.co/jwceVsOK7l @IBDinvestors $PCLN $EXPE $AMZN $AWAY $BRKB $AXP http://t.co/Xz9S0OLkWq
$Stocknewsalerts
2 Mar 15 03:31:48
$EXPE New SEC Document(s) for Expedia, Inc. From our Stock News Alerts App
NASDAQ
2 Mar 15 03:19:25
$EXPE - Post-effective Amendment to an Automatic Shelf Registration of Form S-3asr or Form F-3asr (posasr) http://t.co/Gc72Xp5KDB
NASDAQ
2 Mar 15 03:19:24
$EXPE - Automatic Shelf Registration Statement of Securities of Well-known Seasoned Issuers (s-3asr) http://t.co/82maoD8NqZ
Pzaa...Guy
2 Mar 15 03:19:16
$EXPE - Post-effective Amendment to an Automatic Shelf Registration of Form S-3asr or Form F-3asr (posasr) http://t.co/ZbaY87krGg
Pzaa...Guy
2 Mar 15 03:19:16
$EXPE - Automatic Shelf Registration Statement of Securities of Well-known Seasoned Issuers (s-3asr) http://t.co/oatP52qk5w
ProVesting
2 Mar 15 01:16:03
$PCLN $EXPE $OWW: Priceline: By The Numbers (PCLN): http://t.co/bLVakpNQI6
ProVesting
1 Mar 15 23:46:02
$EXPE: Expedia, Inc. Short Interest Grows by 1%: http://t.co/xej1qgsspY
Ted Dunne
28 Feb 15 15:32:42
#Airbnb at 7 Years Old; It's Not Priceline or Expedia Yet, but Shows Growth of #SharingEconomy http://t.co/I9vInyVPqb $PCLN $EXPE $AWAY
Edward Graham
28 Feb 15 10:29:32
#WarrenBuffett is a closet Tech Guru. He praises Airbnb but something tells me $PCLN $EXPE and $GRPN can do it cheaper. Will research more
Stockaholics
28 Feb 15 09:41:41
Our Penny Stock Picks Gained Over 342% In 2 weeks! Get Our Next Alerts Early: http://t.co/iPnInrsUzz $KLAC $EXPE $HSIC
Penny Stock Secret
28 Feb 15 08:35:15
Yesterday We Made $89,000 In Just One Trade More Info Here http://t.co/SVqoMkrw2z .. $KLAC $EXPE $HSIC
WKRB News
28 Feb 15 06:20:09
Expedia Receives $89.95 Average PT from Brokerages $EXPE http://t.co/vwe8bHRcdq
Selvin
28 Feb 15 04:51:46
RT @KeeneOnMarket: I quit trying to talk to $EXPE after a world record time of 45 minutes, WOW @Expedia @expediatravel http://t.co/Op3rvTmD…
Selvin
28 Feb 15 04:50:59
@KeeneOnMarket @Expedia @expediatravel Time to short $expe stock then :)
				
				
By  +Follow December 9, 2013 1:23PM
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