The “Head and Shoulders” pattern of technical analysis is a very common phenomenon in the market. Now let's look at how to recognize it and apply it in trading.
The advantage of this figure is that it is almost always worked out on 100% and you can see it with your own eyes from the history.
The figure works on any timeframe and any pair. Simply, the older the TM, the naturally longer the figure will take to form.
Recognizing it is very simple, just remember how it looks graphically and already at the stage of formation you will be able to observe that it is being created.
The head and shoulders pattern is a signal to sell or buy a PUT (down) option.
As soon as it becomes clearly visible that the second shoulder is already being formed, after breaking through the support (the neck line of the figure), you can start selling from the next rollback.
Here is an example on the screen:
Head and shoulders
We know that this is the same HEAD AND SHOULDERS pattern, when the right shoulder starts to go down, this is a market reversal, and a sharp one at that.
You can use some indicators in the form of additional filters or trade in conjunction using ready-made ones. strategies.
The head and shoulders pattern is an excellent additional confirmation signal of an imminent reversal, do not neglect it.
It happens that the head and shoulders are also formed in an inverted form, this will already be a signal to buy.
Read also - Pivot Points Classic: Classic pivot points or the simplest strategy!
Reversed Head and Shoulders
In principle, everything looks exactly the same, only in reverse.
The right and left shoulders should be extremely similar, then the figure has a higher significance and can serve as a good support for a market reversal signal and enter even at the beginning of a large movement.
Entry is done in exactly the same way. There are two options for logging in:
1. Immediately after breaking through the resistance line, where the neck of the figure is;
2. Or, wait until there is a rollback, and it goes in most cases and you already start buying from a rollback.