Three-Point Pattern Strategy

Three-Point Pattern Strategy

This digital options strategy is among the more straightforward strategy options available today, yet is a strategy best used by experienced traders. For a three-point downward price action trade, the first point is going to be the highest in the pattern (as shown on within your chosen price chart). For a three-point upward price movement trade, the first point is going to be the lowest in the pattern. This method is primarily one for spotting price reversal, with the three-point downward pin appearing after an uptrend in price, or the three-point upward pin appearing after a downtrend in price.

The goal of using this strategy is to enter the market as soon as support or resistance is shown by the second of the points being broken through by the asset price. A legitimate pattern is recognized when the third point is lower than the first or higher than the first. In any case, if point one is exceeded by point three in the opposite direction, there is no trade signal.

In order to get started, you’ll need charting software such as the MetaTrader chart in Forex trading. You’ll want to start out with a practically bare chart and then focus on price swings and not lagging indicators. Remember that the same rules apply to upward price patterns, only in this case they become inverted. Following an uptrend in price, be watching for the three-point pattern to form, starting with point one. This becomes the top part of the trend. If the asset price moves up, tag the new high as the new first point.

At this stage a reversal in price movement should begin and you will then label the base of that movement as being point two. Next, notice the upward trend, a retracement that has just completed, and the asset price starting to move up. If this new movement exceeds point one, abandon the trade and start over. If the new upward movement does not exceed point one and starts to move down, tag the highest point for this movement as being point three.

Here, the three-point pattern should be complete. However, keep in mind that the price must shift down to break through the low point that was produced at point two. Only if that takes place will all of the conditions be met. At that point, trade the Put (or call if using opposite movement). The outcome is not 100% guaranteed, but you’ll know that you’ve put yourself in an excellent position to profit.

On the downside, when attempting to identify reversals, it’s easy to lose money if the price action is only a retracement. But then the rules here are pretty basic, so you should know when to walk away. This strategy has been used for quite some time in various markets and does act as a genuine price motion strategy. Solid support and resistance guidelines are provided, which is certainly beneficial. There is more than one possible application though, so be sure to practice this strategy several times before using it within the trading platform.

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