The 123 pattern is a price action pattern that is fairly simple to identify, but can be incredibly handy for both finding and managing trades.
The 123 pattern or 123 reversal as it is often known can be found on all time frames and markets and can be used to play trend reversals and breakouts.
In this post we discuss exactly what a 123 pattern is and how you can use simple and free indicators for MT4 and MT5 to find and trade it.
What is the 123 Pattern?
The 123 pattern is formed with three price movements that create the 1,2 and 3 and is similar to the ABCD pattern.
It can be used in both bullish and bearish markets to identify trend reversals or to trade potential breakouts.
Below is a chart showing an example of a bullish 123 pattern.
The first movement back higher is leg 1. This is followed by a retracement back lower that creates a higher low and movement 2. The 123 pattern is fully formed when price takes out the recent high of leg 1. This is also the time when many will look to make their breakout trades.
Bullish 123 Pattern Example
What is the 123 Pattern Used For?
The 123 pattern is mainly known as a reversal and breakout pattern. Many traders use it in conjunction with other price action clues to spot when the trend could be looking to make a potential key reversal.
The 123 can also be used to spot and play breakout trades as well as helping you with your trade management.
How to Trade With the 123 Pattern?
Being able to identify when the trend or momentum is looking to potentially reverse can be very useful for most trading strategies.
That is what the 123 is designed to do.
Below is an example of a bearish 123 pattern. You will see that price action formed the first leg lower, the second leg higher with a lower high and then finally price broke out and confirmed the pattern.
Bearish 123 Pattern Example
This pattern can be used to either make trend reversal trades or to make breakout plays when price confirms the pattern. An example with this chart could be looking to get short when price confirms the 123 pattern on the breakout lower.
123 Pattern Indicators for MT4
NOTE: If you do not yet have the correct MT4 or MT5 charts make sure you read about the best trading charts and the broker to use these indicators with here.
123 Patterns V7 Metatrader 4 Forex Indicator by MT5 Traders
This 123 pattern indicator for MT4 by MT5Traders is used to find potential pattern breakout signals.
The indicator draws two colored lines on your charts, blue and red.
Blue signals a bullish breakout and red signals a bearish breakout.
This is a handy and simple indicator that also gives you the current spreads of the pair you are trading printed on your chart.
Note: Don’t know how to install and use indicators? Read How to Download, Install and Use MT4 and MT5 Indicators
123 Pattern Indicators for MT5
Recognizer 1 2 3 Patterns (MQL5)
This is a solid MT5 indicator that comes with the ability to make more adjustments than some of the others.
The recognizer 1 2 3 patterns indicator for MT5 is designed to show you potential buy and sell patterns on your charts using the 123 pattern. You will also be shown possible entry points and it can be used on all time frames.
If you choose to you can use the inbuilt Fibonacci lines that are drawn to find potential profit target levels.
Pattern 1 2 3 MT5 (MQL5)
This indicator for MT5 will automatically identify the 123 pattern on your charts for you.
You can use this indicator to automatically find the 123 pattern on any market or pair you have available in your MT5.
Similar to the other MT5 indicator above, this indicator gives you potential profit targets that are calculated using Fibonacci.
A handy feature to this indicator is that you can create alerts and push notifications so that when a new pattern is formed you will be notified.
Note: This is the demo version and there is a premium version the indicator creator sells.