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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. To read our full disclosure, please go to: http://www.equities.com/disclaimer


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Results for EXPE
stockroads
22 May 15 16:15:25
New weekly all time highs $AET, $EXPE, $GT, $RHT, $SABR, $SCHW, New 52 week highs $AIG $SC
Capital Market Labs
22 May 15 16:06:52
$EXPE Revenue is Expanding. #CML_EXPE #CML_Revenue http://t.co/OzI3VOUYoL http://t.co/DR9p8jYLj1
12Stocks.com
22 May 15 16:02:53
S&P500 #Stocks Trend $DGX $EXPE $DE $TWC $CRM $INTU $ADI $CI $CPB $GS $CVC $CF $SJM $DVA $ALTR $AON $ESRX $DOV @ http://t.co/RPeaHBZz9y
12Stocks.com
22 May 15 16:02:36
S&P500 #Stocks Performance $DGX $EXPE $DE $NTAP $TWC $CRM $HPQ $INTU $ADI $AVGO $CI $CPB $ALXN $GNW $MU more@ http://t.co/RPeaHBZz9y
Ed Carson
22 May 15 15:56:36
Ctrip tightened its grip on China's mobile travel market by buying a big eLong stake http://t.co/GXV21lYh7Y $CTRP $EXPE $QUNR $LONG
ProVesting
22 May 15 15:33:02
$EXPE $LONG: Expedia Sheds eLong Stake: http://t.co/9ppcKM0L6b
Capital Market Labs
22 May 15 15:27:49
$EXPE up +6.71% to New All-Time High #CML_EXPE http://t.co/TSXDaH5uDm http://t.co/H5xfR3FpCE
dailystockplays.com
22 May 15 14:51:58
52 Week High http://t.co/rUZBlH7AAL $PCYC $VRX $ROP $TWC $ANTM $PANW $RYH $ENR $SBNY $IHF $TFX $PLL $SJM $LEA $AET $EXPE $VGT $IYW
Breaking News Now
22 May 15 14:42:01
$EXPE: Expedia Soars on eLong Stake Sale, Hewlett-Packard Rises on ...: http://t.co/WTo2mUxQSK
SwingTradeBot
22 May 15 14:37:10
Scan results - Expansion Breakout today: $DGX $YOKU $DANG $CTRP $EXPE $INTU $ENR $BRCD $HPQ $MDRX ... http://t.co/obGgnxCgxK
SwingTradeBot
22 May 15 14:31:55
Scan results - New 52 Week High today: $DGX $YOKU $QUNR $CTRP $FL $DE $SHAK $EXPE $INTU $ENR ... http://t.co/GHy3gHt0E0
Ophir Gottlieb
22 May 15 14:13:08
$EXPE up +6.71% to New All-Time High #CML_EXPE http://t.co/i43SeKTw0H http://t.co/DlydYxTpbD
InsiderTradingWire
22 May 15 14:03:47
$EXPE | Expedia, Inc. is up 15% since we reported $22,575,047 of insider buying on 04/14/2015. Did you make ... - http://t.co/YeyebscXV7
The Fly
22 May 15 13:20:22
On The Fly: Top stock stories for Friday $MSFT $CRM $DE $CTRP $LONG $EXPE $JMEI: Full Story http://t.co/UvNyO2NYJu
Derald Muniz
22 May 15 13:20:15
$CTRP leads all my accounts into the holiday with $EXPE a distant 2nd
12Stocks.com
22 May 15 13:00:44
S&P500 #Stocks Trend $EXPE $DGX $DE $TWC $INTU $ADI $CI $CPB $GS $CRM $CF $CVC $SJM $ALTR $DVA $DOV $EMR $ESRX @ http://t.co/RPeaHBZz9y
12Stocks.com
22 May 15 13:00:27
S&P500 #Stocks Performance $EXPE $DGX $NTAP $DE $HPQ $TWC $AVGO $INTU $ADI $MU $CI $GNW $ALXN $CPB $AVP more@ http://t.co/RPeaHBZz9y
Ram Charan
22 May 15 13:00:13
$EXPE sells $LONG. $CTRP buys $LONG. Re-arrangement of ownership. Why all 3 stocks up? Makes no sense.
Stock Prop
22 May 15 12:50:14
Some winners and losers this week: $CENX (-7%) $DE 4% $EXPE 9% $MTW 2% $MBLY (-2%) $MCK .78% $NFLX 1% $SUNE 6% $TIP .48% $TMO 1.6% $VA .88%
oobie
22 May 15 12:49:04
$PCLN bto next week 1230's @ 3.4, $EXPE bto next week 115's @ .65 small on both
Sean D. Emory
22 May 15 12:42:02
Tread Lightly is the theme of today's Daily Market Meter http://t.co/ilnNWif2NH $spy $dia $oil $intu $expe $rost http://t.co/u2bSH3LlS7
Capital Market Labs
22 May 15 12:27:43
$EXPE up +5.33% to New All-Time High #CML_EXPE http://t.co/TSXDaH5uDm http://t.co/BifN4qauGZ
Bruce H Snyder
22 May 15 12:19:05
$EXPE $0.18 dividend Tuesday. Watch out for early assignment of short ITM Calls, esp Jul 87.50 & below, and Jan 65 & below. S=$112.45
Bruce H Snyder
22 May 15 12:16:54
$EXPE dividend on Tuesday. Be sure to manage any expiring weekly option positions appropriately. Short stock = liable for the dividend.
Stocks Creamun
22 May 15 12:00:05
Expedia Inc. $EXPE 112.08 5.85% 2:44pm http://t.co/MCqk0s4Rrz
Stocks Creamun
22 May 15 12:00:05
Expedia Inc. $EXPE 112.034 5.802% 2:32pm http://t.co/MCqk0s4Rrz
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22 May 15 11:58:55
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Stocks Creamun
22 May 15 11:45:05
Expedia Inc. $EXPE 112.025 5.794% 2:29pm http://t.co/MCqk0s4Rrz
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22 May 15 11:45:05
Expedia Inc. $EXPE 112.06 5.83% 2:17pm http://t.co/MCqk0s4Rrz
Hot Stock Bot
22 May 15 11:35:12
$EXPE shoots up 5.79%, currently trading at $112.02
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Expedia Inc. $EXPE 112.00 5.77% 2:02pm http://t.co/MCqk0s4Rrz
Stocks Creamun
22 May 15 11:30:05
Expedia Inc. $EXPE 112.12 5.88% 2:13pm http://t.co/MCqk0s4Rrz
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22 May 15 11:28:04
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22 May 15 11:24:13
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Corey Rosenbloom CMT
22 May 15 11:19:39
May 22 $SPX Stock Scan and Range Day Holiday Update $CTRP $EXPE http://t.co/wY4pD9lQYd $$
Renesource Capital
22 May 15 11:15:49
#Expedia ( $EXPE ) is up 5.8% on #earnings!
Stocks Creamun
22 May 15 11:15:05
Expedia Inc. $EXPE 112.12 5.88% 1:47pm http://t.co/MCqk0s4Rrz
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22 May 15 11:15:05
Expedia Inc. $EXPE 112.025 5.794% 1:59pm http://t.co/MCqk0s4Rrz
Market Int Center
22 May 15 11:12:00
Potential Expedia $EXPE Trade Targets 3.05% Return ( http://t.co/rBg0jEsN0A )
Breaking News Now
22 May 15 11:07:02
$CTRP $EXPE: Ctrip Rallies as Elong Purchase Cools Chinese Travel Competition: http://t.co/WHOF7Bw3iq
Stocks Creamun
22 May 15 11:00:05
Expedia Inc. $EXPE 112.05 5.82% 1:32pm http://t.co/MCqk0s4Rrz
Stocks Creamun
22 May 15 11:00:05
Expedia Inc. $EXPE 111.96 5.73% 1:44pm http://t.co/MCqk0s4Rrz
BreakingStocksNews
22 May 15 10:59:05
$EXPE: Expedia Stock Price Up 5.8% After Analyst Upgrade (EXPE): http://t.co/qXmKdp1jaL
iBillionaire
22 May 15 10:51:21
Expedia's stock jumps after it announces sale of stake in eLong, a Chinese travel service. $EXPE +Billionaire Holders http://t.co/6ljbw4s20a
stockmarketlive.tv
22 May 15 10:45:37
The Best Stock Market Performers for the Month Expedia and Altera http://t.co/ueYHQ6Wbic $EXPE $ALTR
Stocks Creamun
22 May 15 10:45:06
Expedia Inc. $EXPE 112.1694 5.9301% 1:29pm http://t.co/MCqk0s4Rrz
Stocks Creamun
22 May 15 10:45:05
Expedia Inc. $EXPE 112.46 6.20% 1:17pm http://t.co/MCqk0s4Rrz
Alex Vieira
22 May 15 10:44:56
The Best Stock Market Performers for the Month Expedia and Altera http://t.co/uRdeU0wHJJ $EXPE $ALTR
Alex Vieira
22 May 15 10:43:19
Best Stocks to Invest in Expedia Stock Forecast http://t.co/c7jaVv6OWP $EXPE
The Legacy News
22 May 15 10:42:25
Expedia Shares Up 5.8% Following Analyst Upgrade $EXPE http://t.co/SstRTm1JcR
				
				
By  +Follow December 9, 2013 1:23PM
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