Day Trading Tips and Tricks

November 16, 2012

Erich Senft

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Dancing With the Markets

Some traders equate trading to war. They see the act of trading similar to fighting and conquest… I don’t agree. War is disorganized, chaotic and violent. Trading, on the other hand, relies much more on rhythm and timing. To me trading is more like dancing, but not any dance. Trading is like the Waltz.

Why the waltz? Because in spite of the seemingly erratic movements the market makes, they are, in fact, not erratic at all. Market swings and reversals can be characterized by a simple, yet extremely powerful formation: the 1-2-3 formation. And like the waltz, the simple three steps of the 1-2-3 formation give you a way to “dance” with the markets. But don’t let the simplicity of this signal fool you – it is a very powerful indicator of market intention and an indispensable aid in finding trending markets and improving the timing of your trades.

A 1-2-3 formation (as known as the ABC pattern) occurs when the market makes a new high or low. This is the 1 point. From here prices retrace away from the 1 point until they reverse again, this time forming the 2 point. The 3 point occurs when the market attempts to retrace back to, but does not exceed, the 1 point. Once the 3 point is formed the formation is complete. BUY and SELL signals are generated when prices trade past the 2 point; however more aggressive traders can also take trades off the 3 point. In addition, the 1-2-3 pattern will repeat during the market trend allowing you to enter and re-enter off each new signal.

What makes the 1-2-3 pattern so powerful is that it builds upon the market’s struggle with support and resistance. The 1-2-3 pattern is a simple visual aid to let you see if the Bulls or Bears are in control of the market allowing you to BUY or SELL accordingly. The 1-2-3 formation is most often used as a reversal pattern but can be easily adapted to be an effective continuation pattern, so even if you miss the initial reversal signal you still have time to get into the trade off the next continuation signal.

The beauty of the 1-2-3 formation is that it is universal. It works in all markets and all time frames and is a favorite signal for professional swing traders and scalpers alike. Indicator Warehouse has developed the One Two Three Wave Counter indicator to highlight 1-2-3 formations as they occur on your NinjaTrader charts.

Unlike other reversal pattern indicators, the Ninja Trader One Two Three Wave Counter will Alert You to 1-2-3 patterns As They Form. The indicator is fully customizable and allows you to set parameters to filter out weaker signals as well as setting audio alerts to notify you when the signal completes. So if you’re interested in capturing more trending trades, or improving your timing on your entries, consider the Ninja-Trader One Two Three Wave Counter and get ready to dance with the markets, not fight them.

November 16, 2012

Erich Senft

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