The Ross Hook and 1-2-3 Formation

I'm doing some work looking at The Ross Hook and the 1-2-3 Formation. I have started this topic to share what I discover during this process and request comments from others who are familiar with this set-up and questions from traders who would like to know more.

I agreee with your interpretation too Felix...I beleive this numbering scheme is there just to show the phases that make up the 1-2-3 formation and is not meant to be "labeling" the actual points...I.E..phase one would be the trendline break which leaves the high at point one you mention then in Phase two we have a retest of the high at point one ( which establishes the point two low)and then in phase three we resume to trade in the direction of the trendline break which forms the point three high...I hope I didn't confuse anyone with this..It seems like some of the posts are refering to the 1-2-3 only as an end of trend indicator but couldn't we use a mini 1-2-3 pattern to signal us into a trade into a bear flag pattern...? For example...we rally sharply down at the opening and on a 5 minute chart we bounce back to the 20 period exponential moving average with a high adx above 30 ( I mention this because this is a popluar setup...keep in mind I didn't comment on whether it is profitable or not) so then we " dial down to the one minute to look for a mini 1-2-3 pattern to send us short into a trend continuation trade...just thought I'd throw that out here....

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Originally posted by felix

I believe if you take that same chart and relocate the numbers (1 at high, 2 at low of bar ten, 3 at retest, high of bar 12), you have the exact pattern that Ken Roberts has used to make $billions selling his course, which basically tells you it is very easy to make a living trading futures.

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Hi PT...not sure I agree with you here as for an intraday trader can use these on smaller time frames for trend continuation trades on larger time frames...so In essence It can really be used as continuation too...or perhaps we can look at one time frame that is reversing trend ..like the one minute perhaps while the larger time frame ..maybe the 5 or 10 minute is just continuing......please see my prior post..thanks
Bruce

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Originally posted by pt_emini

DT, keep in mind the 1-2-3 is a trend reversal pattern. In practical terms, intra-day in the e-mini's it is a trend exhaustion and reversal pattern. Thus you need a well established directional price trend before starting any sort of 1-2-3 count.

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Originally posted by BruceM

Hi PT...not sure I agree with you here as for an intraday trader can use these on smaller time frames for trend continuation trades on larger time frames...so In essence It can really be used as continuation too...or perhaps we can look at one time frame that is reversing trend ..like the one minute perhaps while the larger time frame ..maybe the 5 or 10 minute is just continuing......please see my prior post..thanks
Bruce

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Originally posted by pt_emini

DT, keep in mind the 1-2-3 is a trend reversal pattern. In practical terms, intra-day in the e-mini's it is a trend exhaustion and reversal pattern. Thus you need a well established directional price trend before starting any sort of 1-2-3 count.

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Yes I agree, a counter-trend retracement downtrend on the 1 minute time frame ending with a 1-2-3 reversal low, may at the same time be fully contained in a single 60 minute bar within a strong uptrend on that larger time frame.

Thus my suggestion to get away from my original idea of looking for new intra-day highs, and go to something more general like the donchian channels.

Another comment on this subject of using volume bars. The 1-2-3 pattern is a timing oriented pattern, and volume bars turn time into a variable. And within the 1-2-3 it is very likely the 1-2 leg will be on low volume, thus it is possible one or two volume bars may consume the entire pattern rendering it invisible on the volume bar chart, whereas it would be easily seen on the 5 minute chart for example. Just something to be mindful of.

here is a link that some may find useful but the area I wanted to draw your attention too is the "Traders Trick " entry...It attempts to give you some ideas as to how you can get in early and ahead of all the people trying to take a breakout of the number three point.... I think it may be appropriate on this thread.
http://trading-naked.com/Articles_and_Reprints.htm

Bruce

scroll down to the Mastering price action heading

Here's the link to the PDF that Bruce is talking about: Trader's Trick Entry
Thanks Bruce.

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Originally posted by day trading

Here's the link to the PDF that Bruce is talking about: Trader's Trick Entry
Thanks Bruce.

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Good set of rules (provisions) in the TTE writeup. I have learned by experience, don't mess with either of these two patterns inside consolidation, the failure rate is very high. They need a well established trend to produce the desired probability of success.

DT are you planning on running some back-tests on these ?

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Originally posted by pt_emini

I have learned by experience, don't mess with either of these two patterns inside consolidation, the failure rate is very high. They need a well established trend to produce the desired probability of success.

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A high failure rate might produce a successful fade strategy?

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DT are you planning on running some back-tests on these?

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This is a possibility. At the moment I am trying to write write an EFS to put the stuff on a chart. If I can get something accurate and definitive to work then I will consider hooking it into the eSignal back testing harness and take a look at how successful this type of strategy may or may not be.

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Originally posted by day trading

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Originally posted by pt_emini

I have learned by experience, don't mess with either of these two patterns inside consolidation, the failure rate is very high. They need a well established trend to produce the desired probability of success.

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A high failure rate might produce a successful fade strategy?

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probably true of many of the more popular patterns than we may care to admit.