The 123 pattern reversal trading strategy begins by identifying three main points. For example, in an uptrend, when the market hits a new high, label that point as 1. We then wait for the price to pull back to a short-term support area. This point is labelled as 2. Finally, when the price moves up to an area between points 2 and 3, we label this as point number 3.
When price comes back down we trade a put option as it goes past level 2.
Choose the expiry equal to the time frame in which you spot the reversal.
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