1-2-3 Bottom Formations

Module Three: Long Term Investing

Get to know the classic trend-reversal pattern!

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Inside 1-2-3- Bottoms

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1-2-3 Bottom Formations

A Change Of Trend

This Runescape Merchanting Guide teaches how to read the charts and trade the 1-2-3 bottom formation. Created in September of 2010, this video begins with a commentary on on of our star merchanting guide writers, Nightfever 3.

See an easy way to practice your trading plan at about 6:00 minutes into the video. At 6:15, a good day for Flipping Items was revealed on the chart – later, this price pattern was coined ‘The Hockey Stick Pattern’.

At 6:45 it’s easy to tell that I havn’t yet discovered how to Milk The GE. As I talk my through the charts, I’m not recognizing what is really happening with the prices on an hour-by-hour basis.

at 10:30, another Hockey Stick Pattern is identified, but I have not yet adopted the strategy of ‘testing the range’ when flipping items because this is September of 2010, and the four hour limit was less flexible.


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Real World 1-2-3 Bottoms

A Common Reversal Pattern

At 1:28 the example of June and July 2010 Wheat – Prices did make a 1-2-3 bottom, and took off for significant gains! See this chart.

This is a video originally created for youtube, but the examples are ideal for this training page.


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Was It A 1-2-3 Bottom?

Reviewing Rocktail August 2010

A short commentary video with an example of watching a market that may be making a bottom formation.

This is a video originally created for youtube, but the example is great for this training page because it reveals the thinking that goes into the 1-2-3 bottom strategy.


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RMMMG – Merchanting Webinar

Question on 1-2-3 Bottom Formations

February 2011 – The uncut emerald was later confirmed to be a powerful 1-2-3 bottom formation. Interesting to see at 1:57 how uncut rubies have consolidated into a relitavely narrow range over the past 4 months. Good call at 2:40 when we picked out the 1-2-3 bottom in diamonds that went from 7k on a six week rampage to hit 13k!

This question is a small part of a one-hour live Webinar where we review prices and talk about what to merchant – what to buy, what price to buy it at – and what price you can expect to sell your items at, depending on your strategy.

The 1-2-3 Bottom Formation Review

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Question 1

The 1-2-3 Bottom Formation is a chart pattern that is often found at the end of a downtrend of a market.

	True
	False

Question 1 Explanation:Correct. This chart formation often marks the end of a down trend in a declining market, and it can also be used to identify the end of an up trend in a rising market.

Question 2

The Buy Signal on a 1-2-3 bottom formation is when prices break above the #2 point.

	True
	False

Question 2 Explanation:Correct. This trading signal is given after a market proves its strength. Always be ready with Rule #1 in the early stages of this trade.

Question 3

Is the moving average line important in 1-2-3 bottom formations?

	It makes no difference to the buy signal
	It is more important than the 1-2-3 pattern
	It adds more evidence to the buy signal

Question 3 Explanation:One moving average is helpful to add confidence to a trading decision - trading with moving average signals usually requires more than one MA on the chart so you can compare them against each other.

Question 4

A 1-2-3 Bottom can occur several times within an uptrend.

	True
	False

Question 4 Explanation:False. Consolidation patterns that create 'triangle formations' or 'pennant formations' are common during up trends and down trends, but a 1-2-3 bottom only occurs at major market reversals.

Question 5

When searching for items that are making 1-2-3 Bottoms, look for markets

	that are topping out.
	that have been declining for 90 days or more.
	are at or near historical low prices.

Question 5 Explanation:Start by searching out markets that have been declining for a long time and review them to see if they are at historically low levels, check them for the formation.

Question 6

As you are watching for a potential 1-2-3 bottom to confirm, it's a good idea to

	swing trade and flip the same item.
	wait for the buy signal to confirm itself before buying in.

Question 6 Explanation:It's better to keep a feel for the pressure and momentum of the market. Do a swing trade on the fade when correct, and flip the item with you notice a good spread in prices. You might also combine a high volume milking the ge strategy as you position yourself to hold onto a long term trade.

Question 7

Can you find 1-2-3 bottom formations in the real world forex, stocks, or commodities market?

	No
	Yes

Question 7 Explanation:Yes, this is a classic trend-reversal trading pattern that has been used for over 100 years - that we are applying the prices on the Runescape Grand Exchange.

Question 8

Is a double-bottom the same as a 1-2-3 bottom?

	Yes, it can be.
	No, these signal different things.

Question 8 Explanation:Yes, sometimes the #3 point is the same as the #1 point - the buy signal still occurs when prices break above the #2 point.

Question 9

When prices are in a long down trend,

	1-2-3 bottom formation trading makes small or no profit.
	1-2-3 bottom formation trading still makes money.

Question 9 Explanation:This trading method is intended to signal the start of an up trending market. Traders often lose small amounts of money testing consolidation points in a down trending market.

Question 10

The 1-2-3 bottom pattern allows you to pick the exact bottom price of an item

	True
	False

Question 10 Explanation:This method is a conservative approach to buying when the market has proven the lowest price twice, and started to surge beyond former resistance levels.

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