How to Use the Trader's 1-2-3 Rule
Assuming we are focusing on a particular cryptocurrency, we apply the 1-2-3 rule by observing its daily chart. First, we notice that the price of this cryptocurrency has been making new highs continuously over a period of time, and the lows are also gradually rising. At the same time, the 20-day moving average crosses above the 60-day moving average, confirming that this is an uptrend.
1: Next, during the upward movement, the price of the cryptocurrency experiences a pullback, retracing to a significant previous low. This low is identified as our support level.
2: Then, we see a hammer candlestick pattern appear near this support level, and the trading volume on that day has significantly increased compared to the previous days. This is a strong buy signal.
3: Investors buy the token based on this signal and set the stop-loss below the support level by a certain margin, such as 5%. Subsequently, the price of the cryptocurrency continues to rise as expected, and you also achieve good profits.
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