1. Chart patterns
  2. The 1-2-3-4 pattern

The 1-2-3-4 pattern

The inventor of the 1-2-3-4 chart pattern is trader Jeff Cooper.

The advantages of the 1-2-3-4 pattern

  • The pattern is designed and used by a famous trader.
  • The pattern can be used on all instruments. Jeff Cooper has a preference for stocks.
  • The pattern is easy to understand.
  • The signals are filtered efficiently by a combination of the ADX and the DMI.
  • The historic results of the signals looks attractive.

About Jeff Cooper

Jeff Cooper started trading in 1981, first for a hedge fund and later for his own account. He lost a significant amount of money during the 1987 market crash. Having learned his lessons from the crash, he only designs strategies which are largely independent of the movement of the overall market. In 1996, Jeff Cooper published his most successful book: “Hit & Run Trading: The Short-Term Stock Traders Bible”. During the internet bubble, Jeff Cooper became an icon for many traders.

Cooper’s philosophy is based on “price action”. The evolution and the dynamics of the market price are key to him. Indicators only serve as filters. The assets on his watch list include, in particular, stocks at new highs, stocks breaking out of consolidations, and stocks with attractive levels of volatility. Thus, he mainly watches dynamic stocks which are likely to continue to move big time.

About the 1-2-3-4 pattern

The 1-2-3-4 chart pattern ...

  • Identifies markets which are breaking out of consolidation.
  • Is used on charts in a 1-day time frame (you can experiment with other time frames).
  • Can be used on all instruments.
  • Provides only buy signals.

For a 1-2-3-4 chart pattern to occur there must be at least 3 subsequent lower lows in parallel with at least 3 subsequent lower highs. A position is bought when the market price trades above the high of the last candlestick in the pattern.

This example shows a 1-2-3-4 pattern detected by the NanoTrader. A buy signal (green chart background) appears when the market trades above the high of the last candlestick in the pattern.


Trading signal based on Trader Jeff Cooper's 1234 chart pattern. A buy signal is given.

This example shows a 1-2-3-4 pattern detected by the NanoTrader. There is no buy signal because the market did not trade above the high of the last candlestick in the pattern.


Trader Jeff Cooper's 1 2 3 4 chart pattern is detected but no trading signal is given.

 

Note: in addition to his high and low price criteria Jeff Cooper also defined criteria for the average directional indicator (ADX) and the directional movement indicator (DMI). These criteria filter the signals. The criteria are automatically taken into account by the NanoTrader platform when indicating a valid 1-2-3-4 signal.

The 1-2-3-4 chart pattern is also available in to NanoTrader Full as a ready-to-use screener, trading signal and trading strategy.