Here is how we could do that. Take a look at chart#5. We assume that we do not foresee the appearance of Reverse H&S pattern right till the low of the right shoulder. Our first look at the market was somewhere in the beginning of 2002. Here we will apply some rules that we’ve discussed in our Forex Military School already. First, you see that market has shown a Double Bottom failure pattern and accelerates from the 0.618 Fib extension to the 1.0 extension and even lower – without any respect to these targets. It tells that bears control the market and that the market should reach at least the 1.618 extension of ABC-top pattern. So, that has happened. Then you see the appearance of Bullish Engulfing pattern right at 1.618 Fib extension target. But this was not enough for you to enter into a Long position; you needed some additional confirmation of bullish bias. Also you see side-by-side inside days here, when the followed trading period range totally lays inside the range of previous one. And that has happening during 4 consecutive periods. It tells you that market is building energy and we should be aware of a strong move in one or the other direction sooner rather than later. You prefer to see upside move. That has happened - after couple of weeks (this is weekly chart) you’ve seen that the engulfing pattern has held and the market has shown a strong thrust bar to the upside. On this bar two important things have happened – engulfing pattern has been confirmed and trend has turned bullish. So, now you have solid context to enter Long. But, as we know, we need to buy pullbacks in a bull trend and not just jump into the market. Since, the previous sell-off was strong and this was just the initial pullback, hence the market still has strong downward momentum and first retracement down should be deep. That’s why you have chosen as entry level not 0.382 but 0.618 Fib support from this initial thrust move up. You’ve entered long right from 0.76-0.7610 area (0.618 Fib support), market even reached 0.786 level, and place stop below the lows of bullish engulfing pattern. Also you have seen that the bull trend holds during retracement. Chart #5 | JPY/USD Futures Weekly. Reverse Head & Shoulders pattern Your stop placement area is absolutely reasonable, because if the market will break it, then it will cancel the bullish engulfing, and it is very probable that the trend will shift bearish again. And now take a look – how tight this stop is, compared to the classical approach. Here is how we get an excellent position even before any suspicions about a potential reverse H&S pattern have appeared. In general, if the market turns to forming H&S, it will act somehow in this way. Understand what you should watch for. First – some targets around the head. It could be an extension target, as it is in our case, it could be Butterfly pattern target or something. Second – around the head usually appears momentum shifting signs – acceleration of the market in opposite direction and some reversal patterns (candlestick, for instance), trend shifting, or the head even could be in a way of W-bottom. Also remember, that retracement will be deep in most cases due to the preceding strong opposite move. So, don’t be hasty to jump in, very probably the market will hit at least 0.5-0.618 retracement area. So, our first task has accomplished we have profitable position before the neckline breakout moment. But know you even do not suppose of reverse H&S. The followed move is just a thrust up for you. The next important moment is in August 2002, when the trend turns bearish. This is a time to close half of your position and move your stop on other half to breakeven. Here you start to suspect appearing of reverse H&S. But here you at a huge advantage compares to public. You’re absolutely flat to breakout process and don’t care about it. You’ve already made significant profit and potentially could make even more, if the Reverse H&S will materialize. Later, in 2003, when market has reestablished the up move and come closer and closer to recent highs you start to see the Reverse H&S pattern. Here you have to move your stop loss to just below right shoulder around 0.80. So, you lock second half of your position in profit and do not feel nervous about the further price action.