What it looks like
In a rising market, mark the highest swing high as point 1. Price dips to a swing low, point 2. It rises again but stops short of point 1, forming point 3, a lower high. The pattern completes when a candle closes below point 2. The size of the dip is the distance from point 1 down to point 2.
What it means
An uptrend is a chain of higher highs and higher lows. Point 3 is the first time buyers fail to make a new high, and the close below point 2 is the first time sellers beat a low in the rise. Together they are the plainest picture of an uptrend turning. It says the rise has lost its structure, not how far the fall will go.
How to trade it
- 1
Label point 1 (the high), point 2 (the dip low) and point 3 (the lower high).
- 2
Confirmation: a candle closes below point 2.
- 3
Entry: sell at that close.
- 4
Stop: above point 3. Example on gold: point 1 at 4,080, point 2 at 4,055 (a 25 point dip), point 3 at 4,070. Sell the close at 4,053 with a stop at 4,072, a 19 point risk.
- 5
Target: the dip size from the break, 4,055 minus 25 points, about 4,030.
A close above point 3, the lower high.
Where it works best
After an extended rise into resistance on the 1 hour to daily charts, especially when point 3 fails at that resistance.
WickSpeak finds 1-2-3 tops automatically and labels them on the candles that made them. Each note says what it is, how to trade it and that a close above point 3 proves it wrong. In Playbook you can use it as a condition in a play, alone or alongside other patterns and indicators (any of the 146 patterns can be a condition), and backtest it on past candles with your own costs.
Common mistakes
- Selling at point 3 before price has closed below point 2.
- Choosing points from tiny swings that mean nothing on the timeframe being traded.
- Holding for a full trend change when the pattern's target is only the size of the dip.
Related patterns
Questions traders ask
How do you identify a 1-2-3 top?
Find a high (1), the dip after it (2) and a lower high (3). The pattern is only complete when a candle closes below point 2.
Where does the stop go on a 1-2-3 top?
Above point 3, the lower high, plus a small buffer for spread. A close above point 3 means buyers made it back and the pattern has failed.
How far does a 1-2-3 top usually run?
The usual target is the size of the dip from point 1 to point 2, measured down from the break. It is a guide, not a promise.
Is a 1-2-3 top the same as a double top?
No. In a double top the two highs are at about the same price. In a 1-2-3 top the second high is clearly lower, which shows buyers weakening sooner.