How to Use the 1-2-3 Formation to Anticipate Price Breakouts

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What is the 1-2-3 formation?

A pattern that identifies 3 points of movement defining a “potential” trend.

• Point 1: Initial upward (or downward) trajectory

• Point 2: Highest peak (or lowest trough) of the initial movement

• Point 3: A partial retracement

The 1-2-3 formation outlines the basic building block of a trend• Uptrend = higher highs and higher lows

• Downtrend = lower lows and lower highs

Example: a potential uptrend:

1-2-3 formation cycles define trends

Real markets are much fuzzier

Detail A

In a trending environment, one formation cycle begets another.

In a new cycle, Point 3 becomes the new Point 1.

What is critical is that point 2’s are exceeded while points 1 and 3 remain unviolated.

Detail B

Detail C

Detail D

Recap

• 1-2-3 formation traces the basic principles of trend construction.

• Identifying this formation in real markets can be trickier.

• Different time-frames may yield different 1-2-3 formations.

• 1-2-3 formation constitutes an objective and rule-based format to identify trends and anticipate breakouts.

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You can request a PDF copy of this presentation.

Send us an email at team@halifaxamerica.com

Or call us at 888-240-7099