My truck has a Ford C4 trans & offers up D, 2, or 1 forward selections. Selecting “2” doesn’t mean “2” only though. It still starts in “1”, then shifts to “2”. But never goes to 3. I guess “2” for a low traction selection wasn’t a concern for a 4WD truck, just put it in 4WD mode for low traction. “2” comes in handy on long down-hills, provides some engine braking.
I always wondered why they call it C4? Since it only has three forward gears. Or are they also counting R? Ford has a C6 transmission too. Does it have 5 forward gears and R?
OP, you might want to keep the link below, has some pertinent info for your Mustang probably. Especially if you find your C4 automatic transmission won’t shift out of first, look at the posts about the transmission vacuum modulator.