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Table of Contents

1-2-3 Strike! Manual

What is 1-2-3 Strike?

1-2-3 Strike! is a trend-following indicator and trading system that tracks subtle changes in the three trading dimensions of volume, trend, and volatility. It spots ideal moments to enter trades before powerful moves and exit in time to profit.

How it works with Trading 360

1-2-3-Strike! is the trend-following indicator of the Trading 360 System. It is built to efficiently enter into and scale out of trades along the prevailing trend. As such, when used with the other 360 indicators, its entry signals will often come after:

  • A reversal signaled by Divergence Cloud progresses into a new trend
  • A breakout or breakdown is signaled by Volatility Crusher

Like all of the Power Bundle indicators, it is designed to be used separately or in conjunction with the other Trading 360 indicators.

Striking when the time is right

There are often small – but noticeable – progressive changes in volume, trend, and volatility before trends really start to take off with decisiveness. 1-2-3 Strike! is designed to detect these subtle changes and signal high probability entry and scaled exit points.

When volume and volatility are high, the indicator enters an ‘activated’ state where it begins to look for potential entries depending on recent changes in trend momentum. When a trend shift coincides with relatively elevated volume and volatility, it strikes with a new entry. A protective process is then used to calculate scaled exit points when volume, trend, and volatility begin to falter. These exits are taken to secure profits and defend against losses before the move is over.

How is all of this calculated?

The indicator waits for elevated levels of volume and volatility before entering its activated state where it begins to look for entries. The Volume Period sets the period of the volume average against which current volume is compared. The Volatility Period sets the length of the period we analyze to determine whether current volatility is relatively high or low. The Fast and Slow MA Periods are leveraged to detect changes in trend momentum.

The entry and exit system

Entries

Long and short entries are taken when the conditions align across all three trading dimensions. The trades are then held until a reversal entry occurs, or until all of the partial exits (the # is set by the parameters ‘Long Partial Exits’ and ‘Short Partial Exits’) are filled.

Exits

Partial exits are taken when volume, volatility, or the initial trend subside. There are also built-in/proprietary time and price based formulas to exit at particularly opportune moments. The maximum number of scaled exits taken per trade is set by the Long Partial Exits and Short Partial Exits parameters. The values of these parameters should be adjusted to fit your own position sizing and scaling preferences.

Long Partial Exits

Long partial exits occur in five cases:

  1. Volume shifts to relatively low
  2. Trend momentum changes directions
  3. Volatility shifts to relatively low
  4. A historically unusually profitable bar occurs
  5. A large, high volume down bar occurs (if ‘Exit on High Volume reversal’ is enabled)

Short Partial Exits

Short partial exits occur in five similar cases as well:

  1. Volume shifts to relatively low
  2. Trend momentum changes directions
  3. Volatility shifts to relatively low
  4. A historically unusually profitable bar occurs
  5. A large, high volume up bar occurs (if ‘Exit on High Volume reversal’ is enabled)

Summary

Logic

1-2-3 Strike! Looks for changes in (1) Trend, (2) Volume, and (3) Volatility to signal entries and exits.

When (1) volatility is increasing, (2) volume is above the norm, and (3) we are in an uptrend, then we get a long entry signal on bars where price moves significantly higher. Likewise, if (1) volatility is increasing, (2) volume is above the norm, and (3) we are in a downtrend, then we get a short entry signal when price moves significantly lower. The idea is to get in at the start of major moves and scale out appropriately.

Exits are taken:

  • On volatile bars which push the open trade into significant profit
  • On bars that move strongly against the open position with high volume (if ‘Exit on High Volume Reversal’ is enabled)
  • When any of the volume, trend, and volatility signals which initiated the trade begin to weaken

Parameters

Volatility Period

Sets the lookback period that we use to see if volatility is increasing or decreasing.

Volume Period

Sets the averaging period for volume. We then use this volume period to (1) ensure we are above average volume when looking for entry signals, and (2) determine if a reversal bar has significant volume when using ‘Exit on High Volume Reversal’.

Exit on High Volume Reversal

If this is enabled, then explosive bars with high volume which go against our current position will trigger a partial exit. This is calculated relative to the recent action. For example, if we are long, and a down-bar with 2x average volume and 3x usual volatility (a relatively big drop) occurs, then we take a partial exit to protect ourselves from a continued reversal.

Fast MA Period

Sets the Fast MA period that is used for both bar coloring and determining the Trend condition ((1) in the summary). If the Fast MA > Slow MA, it’s an uptrend. If The Fast MA < Slow MA, a downtrend.

Slow MA Period

Sets the Slow MA period that is used for both bar coloring and determining the Trend condition ((1) in the summary). Same explanation as the above.

Long Partial Exits

Sets the number of partial exits the indicator will attempt to take for long trades before looking for new long entries. This is essentially just a guide for your discretionary trading depending on your sizing/how many exits you take per entry. It will affect the IET statistics.

Short Partial Exits

Sets the number of partial exits the indicator will attempt to take for short trades before looking for new short entries. This is essentially just a guide for your discretionary trading depending on your sizing/how many exits you take per entry. It will affect the IET statistics.

Trading Style

This setting lets you limit the signalled/displayed entries and exits to either ‘Long and Short’, ‘Long Only’, or ‘Short Only’. It can also help you adapt yourself to a chart’s bias by comparing the IET statistics for different trading styles.

Color Price Bars

Enabling this setting will color the price bars depending on whether we currently in an uptrend or downtrend according to the fast and slow MA’s. Really just a visual guide for convenience.

Trade Examples

1-2-3 Strike! shorting a pullback on Oil, the morning of July 7th on the 1 minute chart, while keeping a high efficiency in both directions:

1-2-3 Strike! playing both sides of the move on EURUSD on the morning of July 7th, with solid efficiency in both trade directions:

Platform-specific topics

For more detailed coverage and examples for all platforms, be sure to check out the Trading 360 Master Class.

MotiveWave

Scanning for 1-2-3 Strike! signals

To scan for 1-2-3 Strike! signals:

  1. Create a new Scan page
  2. Select ‘New Scan’
  3. Select ‘Study’
  4. Choose the 1-2-3 Strike! study
  5. Select one of the ‘(Alert)’ plots to scan for

Usage in the Strategy Builder

1-2-3 Strike! can be used with our Strategy Builder for MotiveWave to create entry, exit, target, and stop conditions. To define a plot condition with 1-2-3 Strike!:

  1. Select the desired ‘(Alert)’ plot from the first input dropdown
  2. Select ‘Greater than’ as a comparison
  3. Set the compared value to ‘Numerical’ and ‘0’

NinjaTrader 8

Creating a Custom Market Analyzer Column

A custom column can be created in the Market Analyzer to scan for signals from any of 1-2-3 Strike!’s plots. To create a custom column:

  1. Right click inside the Market Analyzer, select ‘Columns’
  2. Select ‘Indicator’
  3. Navigate to ‘TradingIndicators -> 1-2-3 Strike!’
  4. Select the desired plot
  5. Click ‘Ok’ – the column will appear and calculate its values

Strategy Builder

Strategies created with the Strategy Builder can incorporate 1-2-3 Strike! signals by creating conditions like so:

  1. Add new condition
  2. Select ‘Indicators -> 1-2-3 Strike!’
  3. Select the desired value plot
  4. Set the comparison as ‘Greater than’ a numerical value of 0 using ‘Misc->Numerical’

MetaStock

Configuring an Optimization System Test

1-2-3 Strike! comes with two System Tests: ‘1-2-3 Strike!’ and ‘1-2-3 Strike! – Optimizer’. The ‘Optimizer’ test allows you to configure the parameter combinations that you would like it to test while optimizing.

Each parameter can be assigned a range which you would like to test, from minimum to maximum value, as well as the increment by which you would like the parameter value to step from the minimum to the maximum.

To configure these settings for the parameters:

  1. Go to System Tests in the Power Console
  2. Navigate to ‘1-2-3 Strike! – Optimizer’
  3. Double click on the test to open its settings menu
  4. In the ‘Optimizations’ tab, you can configure the test values
  5. For ‘Trading Style’, a value of ‘0’ means that the test will use both long and short trades; ‘1’ will take only long trades, and ‘2’ will take only short trades

Videos