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Chapter 14, Part III. Head and Shoulders pattern.

Discussion in 'Complete Trading Education- Forex Military School' started by Administrator, Jul 7, 2011.

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  1. Administrator

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    Part III. Head and Shoulders pattern. [​IMG]
    Commander in Pips: Let’s shift to another classical pattern that is called “Head and Shoulders” – a very poetical name. This is also a reversal pattern that could appear on any time frame, but most significantly if we see it on the daily, weekly or monthly time frames. Although this pattern has been known since the 1920s and has very constant in shape through time, it is much harder trade it successfully nowadays due to its ultra well-known status.

    Pipruit: And why is it called that?​


    [​IMG]

    Commander in Pips: This pattern consists of three tops – first and third tops are lower that the second, so it looks like two shoulders with a head between them. Also the reverse pattern exists – “Reverse Head and Shoulders”, that appears on bottoms. We will call it with short name as H&S and study it like we did the Double Top/bottom pattern – first describe it, then show classical approach to trading, points of recognition of a failure and most of the time will be dedicated to the modern approach to trading process of this pattern. We will skip market mechanics, because it almost the same as with the Double Top/Bottom pattern.

    Description

    H&S pattern is more complex than the Double Top/Bottom pattern, since there are more swings involved in it. Very often it could be difficult to recognize it until the confirmation point. Take a look at chart #1, so as you will find it easier to understand what we are talking about. This is a good example of a Reverse H&S pattern:


    Chart #1 | JPY/USD Futures Weekly. Reverse Head & Shoulders pattern
    [​IMG]

    Here you can see why it is called Head and Shoulders – I adde simple lines so that you can easily see shoulders and the head of this pattern. We would like to see Reverse H&S pattern at bottoms and normal H&S at tops. Also H&S pattern could include other patterns, such as Fib extensions, Gartley Butterflies, AB=CD, “222”, 3-Drives (these patterns we will study in later parts of Forex Military School), Double Tops/bottoms and others. For instance, look at the left shoulder – this is an excellent example of a Failed Double Bottom pattern – see market has taken out the lows of W-bottom and accelerated to the downside.
     
    #1 Administrator, Jul 7, 2011
    Lasted edited by : Mar 27, 2016
    TareqS and fran alvarez like this.
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