The next presentation to catch my eyes and ears was the one given by Alan Farley: "1-2-3 cycles".

Long story short, he repeated what many of us already suspected, that 80% of the time we're faced with range trading and the other 20% of the time we experience trend trading, the latter of the two being the type of trading we're most interested in!

He described trend trading as featuring 3 main components: 1) an action - a main, driving movement, 2) a reaction (a pullback or a throwback), and 3) a resolution, which goes back in the same direction as the action phase OR continues in the direction of the reaction.

Alan suggests that trading the 3rd part of this cycle is the most profitable (unless you want to adopt a more agressive trading style and buy/sell towards the end of the 2nd part of the cycle (demonstrated by horizontal price consolidation).

To understand this simple but profitable concept, take out a sheet of paper, draw a bullish price line (say from price = 10 to price = 20=), then draw a second bearish line going down from the upper 20 price point to price = 15, then draw a third bullish line going from the 15 price point up to around 30. Finally, draw a horizontal line across the tip of the peak at price = 20. The ideal time to buy would be when the third line climbs back up to the horizontal line (price = 20).

To see a real world example, pull up a EUR/USD daily chart on your current trading platform (or open a free demo account here to see what I'm talking about on a real trading platform). Next, if you're using candlesticks, switch the display so that it shows a regular line chart instead. The 1-2-3 cycle is clearly demonstrated just this week. March 29th shows the end of cycle 1 (price has risen steadily over the course of a few days, closing at $1.3482), the next day cycle 2 is illustrated (price reacts, pulling back to $1.3413). On March 31st, price takes off again, passing the peak achieved at the end of cycle 1, this is where you could/should have bought in! Had you bought when price hit $1.3482 again, you could have ridden the rise all the way up to $1.3547, realistically selling at around $1.3507 if you used a 40-pip trailing stop...an easy 25 pips if you used a trailing stop or 50 pips if you had a 50-pip take profit objective.