How to Use the Trader's 1-2-3 Rule

Suppose we are focusing on a cryptocurrency, and we apply the 1-2-3 rule by observing its daily chart. First, we notice that a particular cryptocurrency has been reaching new highs over a period of time, and the lows are also gradually rising, while the 20-day moving average crosses above the 60-day moving average. This confirms that we are in an upward trend.

1: Next, during the upward movement, the cryptocurrency price experiences a pullback, retracing to an important previous low. This low is the support level we have identified.

2: Then, we see that near this support level, a hammer candlestick pattern appears, and the trading volume on that day has increased compared to the previous days. This is a strong buy signal.

3: Investors buy the tokens based on this signal and set the stop-loss level a certain distance below the support level, for example, at a 5% position. After that, the cryptocurrency price indeed continues to rise as expected, and you also gain a good profit.