# The 123 Rule in Trading: Key Signals for Bottom Picking and Top Selling

In the crypto market, you've probably heard many trading rules. But the ones that are truly practical and not complicated might just be the "123 Rule." Many traders use it to turn losses into profits, while others fall into traps with it. Today, let's break down how to actually use this rule.

## What is the 123 Rule?

Simply put, it involves three signals:

**First Signal** — Price breaks through the trendline. The line you've carefully drawn gets pierced by the price, and that's the beginning of trouble.

**Second Signal** — During an uptrend, the price fails to make a new high, or during a downtrend, it fails to make a new low. At this point, the market starts to hesitate, and the direction becomes less certain.

**Third Signal** — The price falls below a previous low (in an uptrend) or breaks above a previous high (in a downtrend). At this moment, the old trend officially dies, and a new reversal may be on the horizon.

## How to use this rule?

The steps are quite straightforward:

1. **Draw the trendline first** — Connect the highs or lows to see where the market is headed.
2. **Watch for a breakout** — Wait for the price to pierce this line; the first warning signal sounds.
3. **Check for new highs or lows** — See if the market's momentum is waning.
4. **Wait for the final blow** — When the price falls below a previous low or breaks above a previous high, all three signals are in place, and a reversal is likely imminent.

## Why use it?

First, it is **very intuitive**; you don't need complicated indicators, just analyze candlesticks. Second, it is **responsive**, allowing you to catch trend reversals early—an excellent opportunity for bottom fishing or top selling. Plus, it has **strong adaptability**; whether it's a small altcoin or a major coin with a long-term trend, this rule can be applied.

## Be cautious when using it

Don't treat the 123 Rule as a panacea. Markets are too complex, and relying solely on one rule is definitely not enough. The smartest approach is:

- **Combine with other tools** — Use moving averages, volume, fundamental data, and confirm from multiple angles.
- **Strict risk management** — Set stop-loss and take-profit levels; don't let one mistake wipe out your account.
- **Continuous refinement** — Practice with multiple coins and in different scenarios to truly master this tool.

Ultimately, the 123 Rule is a good knife, but the skill of the person wielding it determines success or failure. Markets are unpredictable; even the best strategies can fail. Therefore, besides learning this rule, you also need to learn how to coexist with the market.