Pivot point study : Hot Topic

The Ross Hook and 1-2-3 Formation


I'm doing some work looking at The Ross Hook and the 1-2-3 Formation. I have started this topic to share what I discover during this process and request comments from others who are familiar with this set-up and questions from traders who would like to know more.
The obvious source for more information on this subject is of course Joe Ross' web site: http://tradingeducators.com/

And here is a PDF which discusses the concepts: The Law of Charts
The 1-2-3 is pretty useful intra-day, 5 minute time frame or less.

Calling a simple flag pattern a "ross hook" is a bit conceited imho, considering the pattern was formalized in 1948 by Robert Edwards and John Magee in their comprehensive and definitive work "Technical Analysis of Stock Trends", now in its 7th printing...
Here is a link that briefly describes the 1-2-3 pattern for those who may not know what it is exactly...you can click on the chart to see the reverse set up..I think if you add a volume qualifier so that you want to see lower volume on the retest and higher volume on the trendline break can help this pattern in general

http://www.dacharts.com/123.htm

For what it's worth

Bruce
excellent quick reference, thanks Bruce


For the 1-2-3 reversal pattern, I am thinking the bid/ask indicator from the other thread could play a role as a trigger signal to enter the trade as price begins to come out of point 3.

The problem I have with the ross-hook, in actual trading is you tend to get hung out to dry with the entry. Saying it another way, the risk in the trade is pretty wide going in, because entry using the stop-limit method he uses puts you into the trade with a wide stop and at a high $TICK level, which often triggers an immediate reactive shakeout you have to ride throught. It's an inefficient and higher risk than necessary entry method. Using the bid/ask indicator trigger could get you in a lot quicker and closer to the stop, thus reducing the open risk when the trade is entered. This would give you more breathing room to ride through the inevitable shakeout.
Thanks for the comments and resources guys! I am looking at the image that Bruce referred to:

For the purposes of attempting to back test this I am trying to define points 1,2, and 3 with an absolute rule set. From what I have discovered so far the set-up cannot number point 1 until at least 1 bar past point 1 has closed? So we have a series of higher highs and then a lower high and once the lower high bar is closed we can say that the previous bar to that (i.e. the last higher high) is point 1.

A question: How many higher highs do we need to see to in order to establish that this is an uptrend and a potential point 1?
I believe if you take that same chart and relocate the numbers (1 at high, 2 at low of bar ten, 3 at retest, high of bar 12), you have the exact pattern that Ken Roberts has used to make $billions selling his course, which basically tells you it is very easy to make a living trading futures.
The 1-2-3 pattern that I am currently working on is exactly as you have just described it felix and not as in the image.
DT, keep in mind the 1-2-3 is a trend reversal pattern. In practical terms, intra-day in the e-mini's it is a trend exhaustion and reversal pattern. Thus you need a well established directional price trend before starting any sort of 1-2-3 count. So at a minimum intra-day that uptrend on the chart is a sequence of new intra-day highs. Also, point 1 will usually correspond to an extreme high in volume, the final exhaustion move.

Putting it another way, we don't want to be looking for this pattern in the middle of lunch-hour congestion.

Perhaps another way to view this is outside of value and/or outside of developing value. Certainly not in the middle of developing value, or some other noisy trend-less low volume / low volatility price consolidation situation.
quote:
Originally posted by pt_emini

...you need a well established directional price trend before starting any sort of 1-2-3 count. So at a minimum intra-day that uptrend on the chart is a sequence of new intra-day highs.

That's one of the definitions that I'm trying to pin down, how many subsequent higher highs is an uptrend?
quote:
Putting it another way, we don't want to be looking for this pattern in the middle of lunch-hour congestion.

I completely agree and the volume based charts usually take care of this.

Thanks pt!
quote:
That's one of the definitions that I'm trying to pin down, how many subsequent higher highs is an uptrend?


Kinda depends on the timeframe we apply it to because what we are really talking about is how long do these intra-day trend's usually last before reversing. We need to get into the ballpark before we start looking for a reversal. Just for the sake of simplicity let's say the average duration is 60 minutes, so on a 5 minute chart, thats 12 bars long, but on a 15 minute chart it's only 4 bars. If we use volume bars to collapse the low volume periods then the timeframe variable is somewhat removed from the equation. Volume bars should also allow us to use 24 hour data to smooth out the trend continuity.

We could use donchian channels with the volume bars to generalize the trend beyond just setting new highs for the day, but we will have to select a lookback period (another variable). We might say OK, based on experience or research, we need to see at least N volume bars pushing the upper donchian channel higher before we will look for the 1-2-3 pattern. In which case point 1 will be the last bar touching that upper channel line, and point 3 will try but fail to reach it.
quote:
Originally posted by day trading

quote:
Originally posted by pt_emini

I have learned by experience, don't mess with either of these two patterns inside consolidation, the failure rate is very high. They need a well established trend to produce the desired probability of success.

A high failure rate might produce a successful fade strategy?



probably true of many of the more popular patterns than we may care to admit.