Experiences in forex trading, by a special way.

November 14, 2022

Head and Shoulders Pattern in Technical Analysis

Head and shoulders pattern in technical analysis is a highly accurate pattern. In forex trading, using this pattern is very effective.

One very important thing to keep in mind, when using technical analysis to trade forex (or other products), whether you trade in the trend or against the trend, your entry price should be 1 reversal point.


For example: You trade forex at the main time frame at H1, and at H1 it is an uptrend. So, if you trade against the trend then you will find a price reversal area on H1 to SELL. If you trade with the trend, you should wait for a correction on H1, then on M5 there will be a downtrend, and you will have to find a price reversal area on M5 to BUY.

The Head and Shoulders pattern is a very reliable reversal pattern. This pattern consists of one at the top, the Head and Shoulders, and the other at the bottom, the Inverted Head and Shoulders. Since the bottom pattern is just the reverse version, this article only covers the top version.


In addition, this pattern has a number of other variations, such as the 2 tops / 2 bottoms (no head, only 2 shoulders), the 3 tops / 3 bottoms (heads and shoulders are equal to each other). each other),... all variants will work as standard models.

Here is an image of the Head and Shoulders pattern at the top:


Why do I rate the Head and Shoulders pattern so accurately? Because it responds to signals confirming reversals, including:

- Trend Break: The Head and Shoulders pattern is completed after the price breaks the neck area (red neckline). After the price fell through this zone, the trend reversed from bullish to bearish.

Volume Confirmation: With the Head and Shoulders pattern, most volume increases sharply when the price falls through the neckline, which is also a support zone, thus confirming a trend reversal.

- Psychological imbalance of the market: At the price area forming this pattern, the market sentiment has an imbalance, because the price is constantly changing, from up (uptrend) - down ( forming left shoulder) - rising - falling (forming head) - rising - falling (forming right shoulder). Psychological imbalance often leads to a change of trend.

And here are some notes when applying the Head and Shoulders pattern in technical analysis & forex trading:

- Combined with signals from the Price Action method (candlestick).

- Incorporate multi-timeframe analysis.

- It is possible to consider entering a SELL order early at the top of the right shoulder, to optimize the profit: risk ratio.

- Apply this pattern to find the exit point (take profit). For example: You are BUY according to the main time frame of H1 and hold the order, but do not know at which price area to take profit. So just wait for a Head and Shoulders pattern on a smaller timeframe (M5 or M15) to find the ideal entry point, be it a Right Shoulder top, or a Head top.

Some sharing from a personal perspective, hope it is useful to you. Please share the article if you find it interesting.

Thank you!

Best regards,

CaPhiLe.Com

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