A 1-2-3 Top occurs frequently on the charts, sometimes as part of a larger pattern, usually after a significant uptrend. It indicates the end of the uptrend and a potential reversal to a downtrend. It is similar to a Double Top in appearance except for the fact that the second top (point 3) is lower than the first top (point 1).
(Fig 3.1 - 1-2-3 Top)
The formation of the second peak at a lower level than the first resembles the Head and the Right Shoulder pattern in the H&S, and is weaker than the Double Top. The pattern occurring after a sustained uptrend is a strong signal for the trend to reverse. The confirmation of the pattern usually occurs when the price breaks below the trough or the neckline that separates the two peaks.
Similar to H&S, a pattern failure on the 1-2-3 Top can occur in many ways like the price after breaking below the neckline reverses and closes above the neckline. Or a small bullish pattern forms right after the breach of the neckline and a subsequent breakout happens.
1-2-3 Bottom is a bullish pattern, the exact reverse of 1-2-3 Top above. Please refer to the image below.
(Fig 3.2 - 1-2-3 Bottom)
Please click on "Next Post" to move to the next chart pattern - W Pattern.
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