The 1-2-3 Indicator is for the purpose of identifying a change in trend. The 1-2-3 Indicators consist of 3 points. There are two types of 1-2-3 Indicators:

1-2-3 Top Indicator

The 1-2-3 Top formation indicates a SELL as soon as the price drops below the third point, and continues to fall below point two's price.

The 1 and 3 point can also serve as stop loss orders, where the 3 is a more conservative stop loss point since it is more of a tight placement since it is lower than point 1.

This formation is usually formed at the climax of a trend.

1-2-3 Bottom Indicator

The 1-2-3 Bottom formation is a bullish signal that indicates a change in trend to an upward trending price. Converse to the above, the 1-2-3 Bottom indicator must travel above the third point and past the second point for the formation to be complete.

A conservative stop loss order can be placed right below the third point. For a more loose stop loss, place the order at a price right below the first point.

Below is an actual example of a 1-2-3 Top formation for Intel. Notice as soon as the price fell below the third and second points, that the trend began to travel downwards. Unfortunately, if you were in this stock at the time, there would have been little time to notice a 1-2-3 Top formation since the massive decrease in price from 25 to 21.50 in early 2006 happened almost instantly. This is a major problem of the formation, so use it in conjunction with other indicators.