1-2-3-4's

Premise:

Strocks trending strongly tend to rest for three days to catch their breath before resuming their move to new levels.. This setup does not occur very often and they do not always rest three days. Sometimes a day or two and others four or five.

For Buys

1. Identify a market whose 14-day ADX is greater than 30. The higher the ADX, the better. If you are not using ADX, the RS reading must be at 95 or higher.
2. The 14-day + DI reading must be greater than the 14-day -DI reading.
3. Waiting for the market to have a 1-2-3 correction. This means that the market must have three consecutive lower lows or any combination of two lower lows and an inside day.
4. On day four only, buy 1/8 above the day-three high.
5. When filled, your initial protective stop should be near the day-three low.
6. As the position moves in your favor, you should trail your stops. In this setup, I tend to allow for a little more breathing room on my stops because of the upside potential of the moves.

For Shorts

1. ADX must be greater than 30. The higher the ADX, the better.
2. The -DI must be greater than the + DI.
3. Wait for a 1-2-3 rally. Three higher highs or any combination or two higher highs and an inside day.
4. On day four only, sell short 1/8 below the day-three low.
5. Your initial protective stop should be near the day-three high.
6. As the position moves in your favor, trail your stops.