Measuring breakouts with “ROC”:

Many believe it is important to view the market from as many different angles as possible. The market's day-to-day price action is the result of the perpetual battle between the buying and selling forces which enter the marketplace every day, driven by their own reasons or motivations. Because the human decision to buy or sell any given market is guided by emotional factors, mathematically it may be difficult at times to logically dissect the trading activity into a straight forward formula. For this reason, we must do our best to look at the same picture from as many different angles as possible.

The (ROC) Rate of Change indicator is a very straight forward momentum oscillator which measures the percent change in price, from one period to the next. With the center line set at either 0 or 100, the ROC can be used to identify range bound conditions as the market continues to move to a lesser degree each time it revisits a narrowing support and resistance line. However, when the market breaks out of its own respective trading range, the ROC will reflect this change in sentiment as it may break out of its own respective consolidation pattern. This reminds us of a crucial point: it is not only important to identify those times when the market trades at a new high or low price, but also to measure this move in respect to the market's “normal” trading habits.

For example, we can see the following (2) charts show a very common trade setup or situation; the market in both cases formed a common triangle consolidation pattern as its support and resistance lines continue to trend towards one another. This may take the form of a consolidation triangle pattern on a number of different time frames. Throughout the course of a trading day, there may be many times when traders will buy a new high or sell a new low in anticipation of a breakout in either direction. But we can see the true breakout did not occur until the ROC broke out of its own respective trading range. Logically we can see that when a breakout occurs, the market has a tendency to move to a greater degree than it did during the previous period(s) of time. As we can see from the chart above, the ROC plots this phenomenon in an easy to understand format. Additionally, we can continue to anticipate the market's trading range will persist until a new high/low occurs not only on the physical price chart, but also when reflected in our ROC.

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Forex 1-2-3

Forex 1-2-3 Method

This particular technique has been around for a long time and I first saw it used in the futures market.
Lets first start with the basic concept. During the course of any trend, either up or down, the market will form little peaks and valleys. see the chart below:
Since then I have seen traders using it on just about every market and when applied well, can give amazingly accurate entry levels.




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The problem is, how do you know when to enter the market and where do you get out. This is where the 1-2-3 method comes in. First let's look at a typical 1-2-3 set up:

Nice and simple, but it still doesn't tell us if we should take the trade. For this we add an indictor. You could use just about any indictor with this method but my preferred indictor is MACD with the standard settings of 12,26,9. With the indictor added, it now looks like this:

Now here is where it gets interesting. The rules for the trade are as follows:
Uptrend
This works best as a reversal pattern so identify a previous downtrend.
Wait for the MACD to signal a buy and for the 1-2-3 set up to be in place.
As the market pulls back to point 3, the MACD should remain in buy mode or just slightly dip into sell.
Place a buy entry order 1 pip above point 2
Place a stop loss order 1 pip below point 3
Measure the distance between point 2 and 3 and project that forward for your exit.
Point 3, should not be lower than point 1
The reverse is true for short trades. As the market progresses you can trail your stop to 1 pip below the most recent low (Valley in an uptrend). You can also use a break in a trend line as an exit.
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Some examples:

There are a lot of variations on the 1-2-3 setup but the basic concept is always the same. Try experimenting with it on your favorite time frame.