Recently, while reviewing my trading records, I remembered the 123 rule. To be honest, this method is really practical when used, especially for those who want to simplify their trading logic.

First, let me explain what the 123 rule actually is. It's quite simple—using the changes at three points to determine whether the trend will reverse. In an uptrend, if the price first breaks through the upward trendline, then pulls back but doesn't break the previous high, and finally drops again and breaks the pullback low, that completes a reversal signal. The same logic applies to a downtrend. In plain terms, the 123 rule is about identifying a structure of rising-falling-rising or falling-rising-falling, and when this structure appears, it indicates that the market direction might be changing.

I think the most valuable aspect of the 123 rule is its practicality. First, it can be used to confirm the trend. When you see a continuous upward or downward movement, and then a sudden appearance of a 123 pattern, you can basically judge that the trend is about to turn. Second, this rule can serve as a signal to close or reduce positions. Compared to reversal patterns like double tops, double bottoms, or head and shoulders, the 123 pattern occurs more frequently because it evolves from the basic laws of trend behavior. Therefore, using it for timely exits is more reliable.

Another very practical use is for entry points. The breakout points in the 123 rule are very clear and easy to identify, making it highly feasible in real trading. When the price breaks below the second point, it usually signals the start of a move, and entering at this point tends to have a higher success rate.

I personally often combine the 123 rule with the RSI indicator. The overbought and oversold zones of RSI do have some flaws—first, it only points to a zone and isn't very precise; second, in a trending market, RSI can become dull, leading to continuous overbought or oversold signals and frequent stop-loss triggers. But if I use the 123 rule as a trading signal to filter entries, I can more accurately enter during overbought or oversold conditions and also filter out some noise signals, improving the success rate.

Honestly, the 123 rule looks simple but is very powerful when used well. It's easy for beginners to grasp because the logic is clear and doesn't require complicated calculations. I recommend everyone to master the 123 rule thoroughly, then adjust it according to their trading style, and combine it with other indicators to develop a more suitable trading method. Persisting with this approach will definitely improve your trading skills.