123 Swing Trading System - best breakout trading strategy

What is the best breakout trading strategy? Learn how to use 123 swing trading system in this complete guide.

AtoZForex Swing trading is a very popular technique in Forex when the trader aims to capture gains in any financial instrument within an overnight hold to several weeks. Swing traders look for ‘swings’ in assets prices, holding a position open for several days. Today, we will look into one of the swing trading strategies - 123 swing trading system. In short swing traders enjoy their patience.

123 swing trading system

The 123 Forex trading system is a very practical swing Forex trading strategy based on Break Out method. Many of the traders believe that this strategy is incredibly simple, and thus, can be used even by Forex beginners. The 123 swing trading system is working on the principle of identifying support and resistance areas. The traders are entering trades in the break of these levels.

What is the 123 swing trading system pattern?

Now, when you know what this strategy is, it is necessary to understand how to identify the desired pattern. Let's go over two scenarios:

When we witness an uptrend in the market, the price of the financial instrument will make 3 points:

  1. Point 1 is the point of the lowest low that is creating a support level
  2. Point 2 is the point of the highest high, it is forming a resistance level
  3. The point 3 is the second low point, which is a support level. It will be higher that the point 1.
  4. The breakout of the price above the point 2 tells us that the uptrend is continuing.

In case we have a downtrend market situation, we look for 123 chart pattern:

  1. Point 1 will become the highest high when price touches resistance and moves down
  2. Point 2 becomes the lowest low, thus forming support and the price is moving up
  3. It then finds resistance at the point 3
  4. When the price is breaking the support level of point 2, we know that the market is most likely to continue moving downward.

123 swing trading system

GBPUSD Hourly chart showing 123 swing trading system

123 swing trading system selling rules

Selling rules with 123 swing trading system is very easy. Short entries are based on simple rules:

  • Place a Sell Stop approximately 1-5 pips above the point 2
  • Place stop loss approximately 1-5 pips above point 3
  • Also, place your profit target at 3 times the stop loss distance

123 swing trading system buying rules

Similar to short entries, 123 swing trading system buying rules are simple:

  • Place a Buy Stop approximately 1-5 pips above the point 2
  • Place stop loss approximately 1-5 pips above point 3
  • Similarly, place your profit target at 3 times the stop loss distance

Are there any specifics of 123 swing trading system?

Yes, there are. In order to properly operate with this 123 swing trading system, you will need to use:

  • 1 hour and above time-frame
  • 100% Price Action Indicator or any indicators that will help you filter your trades (MACD)

As for the currency pairs, you can trade any with this strategy.

How to manage your winning trades in 123 swing trading system?

In order to get your profit trades properly managed, you will need to utilize the following techniques:

  • In case your trade is in profits by more than 2 times the sum you have risked, consider moving your stop loss to lock in profit that is equal to the amount risked initially;
  • If your trade is in profit exactly by amount risked, consider shifting your stop loss to breakeven;
  • An alternative to the previous point: If your trade is in profit by amount risked, look into closing half of your trade and move stop loss to breakeven. In this way, no matter what happens, you will get some profits out.

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What are the advantages of 123 swing trading system?

  • It is a solid swing strategy that is simple to understand and execute;
  • You can use simple price action to enter the trades or any other few Forex indicators that will help you to filter your trade entries;
  • The strategy allows you to timely hit the profit targets.

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See also: Why do I Swing Trade? Enjoy stress-free trading

What are the disadvantages of 123 swing trading system?

  • Performs poorly in sideways trending market;
  • Often, you will need to calculate your position sizes in order to mitigate the risks, since the stop loss distances tend to appear large.

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Think we missed something? Let us know in the comments section below.

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