How should traders apply the 1 - 2 - 3 rule?
Taking a specific cryptocurrency we are focusing on as an example, we will practice the 1 - 2 - 3 rule by observing its daily chart.
Initially, we noticed that this cryptocurrency has continuously created new highs in the past period, and its lows are also showing a gradual upward trend. At the same time, the 20-day moving average has crossed above the 60-day moving average. Based on these observations, we can determine that this is an upward trend.
During the continuation of the upward trend, the cryptocurrency price experienced a pullback, and the pullback position was close to a key previous low, which we identify as the support level.
Subsequently, we observed a hammer candlestick pattern appearing near this support level, and on the day the hammer candlestick appeared, the trading volume increased compared to the previous days, which is undoubtedly a strong buy signal.
Investors buy the token based on this signal while setting the stop-loss level below the support level by a certain margin, for instance, setting it at a position 5% below the support level. Afterwards, the price indeed continued to rise as expected, resulting in considerable gains for the investors.