Sometimes in trading, it’s the simplest and most well known strategies that are the most effective. This can accurately be said of one of the most classic forex trading methods in the book, simply known as the 1-2-3 strategy, because it’s as easy as, well…you know.

This forex trading method takes you straight back to technical analysis 101 in identifying a bullish or bearish retracement and profiting from it. This strategy is slightly more aggressive than some, in that it doesn’t confirm the 4^th advancing pivot like some strategies do. It’s designed for a quick and easy entry into the market and is a particularly good forex trading method for day traders who need a quick yet sound analysis of patterns.

Basically it works by taking three advancing pivots, identifying the direction, and buying at the third pivot. So for a bullish retracement, we observe the first swing low which should ideally be located at the base of a deep trough with heavy support. The next swing high should be a significant upturn in momentum, possibly right before or after a MACD cross or at a Bollinger band breakout. The 3^rd pivot should then be significantly higher than the first, marking the start of an uptrend. Pivot three is your entry point into the trade with this forex trading method.

For a bearish retracement, the pattern is identical, only with the pivots reversed. Rather than entering the trade at a significant support, enter it at a resistance with an uptrend losing momentum. Wait for three pivots to advance downward, then place your trade at pivot number three, which should be a lower swing high than your first pivot. Easy.

This is what your bar chart should look like before entering the trade. As I said, the entry is at pivot number three, so once that point comes, pull the trigger and place your OCO bracket with whatever level of potential gain and potential risk the trade indicates it has.

I would hesitate to recommend following this forex trading method in an oblivious manner to other factors of technical analysis that provide confirmation. Look at a few time frames above you to make sure you have a solid pattern for the upturn there as well, and use the MACD and Stochastic to make sure your momentum is appropriate for the trend. Here’s an example of what these indicators should look like before placing the trade:

You can see a good deal of MACD convergence on the upside of the trend. Before even identifying the first pivot, there is already a MACD cross, and the stochastic is advancing heavily into an overbought position. This would have been more than enough confirmation to enter the trade at the third pivot in the trend, right before it took off into the stratosphere for a beautiful 70 pip trade. Nice.