Successful trading is all about objectively trading high-odd setups, entering with proper position size, then using proper money/risk management to manage in between.
As Master Traders, we trade any liquid stock, ETF, option, commodity or currency with a compelling pattern on Multiple Time Frames (MTF) using Technical Strategies (MTS).
Master Trader teaches many top technical patterns for swing trading stocks and options:
Buy and Sell Setups; Breakouts and Breakdowns; Professional Igniting Gaps; M and W Reversals; Failed Patterns and Shakeouts; and many more.
Today we are going to teach you a powerful setup — Master Trader 1-2-3 Continuations – on a trade we gave our subscribers to Swing and Options Trader last week which booked a 27.7% return in a few days!
Technical Setup of the Bullish 1-2-3 Continuation (+123)
Here is the setup, which applies to any time frame and any tradable instrument.
Some novice stock and options traders naively believe that nobody can predict price action. We beg to differ, and our staggering results prove otherwise.
The basic long setup is made up of three bars.
A Wide Range Bar (+WRB) that opens near the low of the range and closes near the high of the range
An inside bar (trades inside of the +WRB), and a trigger or entry that breaks above the inside bar’s high.
Two or three inside bars are fine. It’s simple, but there is more to a quality setup.
All setups have different levels of quality, which is taught in the Swing Trading Course. Applying Master Trader Technical Strategies (MTS) to each will substantially stack the odds in your favor.
The best +123’s set up from a base or consolidation as shown above. The +WRB breaks out of a consolidation.
Master Trader also teaches how to trade them from bullish gaps, shakeout patterns, and other setups using MTS.
Then we want what we call a “price void,” which means there is insignificant price resistance to the left for long trades, allowing the stock to move higher easily.
We actually prefer two inside consolidation days with the more current bar trading under the low of the prior inside bar but in all cases both bars remaining in the upper 40% of the +WRB.
The shallower the retracement of the inside bars into the +WRB the better since that shows stronger demand. Retracements greater than the 40% area on a closing basis decrease the quality of the setup.
The entry is to simply buy over the highest bar. The initial stop is under the low of the +WRB to give it breathing room.
Thereafter, after one complete bar after entry, raise the stop to under the low of inside candles and then go into trailing mode per your Trading Plan.
With this bullish setup, you can buy the stock – or use bullish options strategies using MTS.
In Master Trader’s Weekly Options Trader, these are awesome setups in which to sell puts and bull put credit spreads under the +WRB.
In fact, we did one on CXO last week on the same +123 Setup:
The history of the trade given to subscribers was:
“12/6: CXO – Shorted Dec (12/13) $72.5/68.5 put spread for $.45/share. 12/11: Closing at $.05/share Mid-point (89% Max Profit) to book gains ahead of FOMC and avoid any gap risk.”
In selling options around compelling short-term turning points, you profit from the rapid decay of the option’s value into expiration in a few days – and the stock can still go against you somewhat to make a full profit!
Yes, that right. The stock price can go against you and still make the full profit because options lose their value over time.
The Psychology of the +123 Setup
A Wide Range Bar (+WRB) is a Power Bar. Its range is at least twice as large as normal range candles which you can see easily.
We want little to no tails (wicks). The +WRB represents solid buying (demand) throughout the entire candle.
Master Trader calls these +WRB Igniting candles.
Now, the inside candle(s) which remain in the top 1/3 of +WRB is a bullish consolidation on a smaller time frame.
This is because demand is strong and buyers are stepping up to accumulate shares on small pull backs intra-day.
Master Trader Tip: View the bullish inside consolidation day(s) like a “launching pad” to advance the stock higher on the breakout.
A retracement of greater than 50% of a +WRB on a “closing basis” puts into question the strength of the +WRB. Where did the buyers go?
However, if the issue retraces more than 50% and rallies all the way back near the high of the +WRB, that’s okay.
That price action signals that buyers stepped up aggressively on the dip.
Successful traders only need a few compelling patterns to generate profits and wealth through trading and investing in the markets. It then becomes your job to wait for those setups, and execute and manage with property money and trade management using the Master Trader Method (MTM).
The bull and bear 1-2-3 continuation patterns – as explained – are some of Master Trader’s favorite, highly reliable setups.
They can be traded on any time frame. The setup and management are the same.
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