Head and shoulders trading patterns are one of the most reliable and easy to spot reversal patterns in the forex markets. They occur when the price action forms a clear head and shoulders top or bottom, which signals a potential change in direction.
The head and shoulders pattern can be found in any timeframe, but is most commonly seen on longer-term charts such as daily or weekly. The pattern can be used to trade both reversals and continuations, depending on where it forms in relation to the overall trend.
What is a Head and Shoulders Pattern?
The head and shoulders pattern is one of the most reliable and easy to spot chart patterns. It’s a reversal pattern that can signal the end of an uptrend and the start of a downtrend.
Head&Shoulders Visual Indicator
- The left shoulder: This is the first peak in the pattern. It forms when the stock rallies and then pulls back.
- The head: This is the second, higher peak in the pattern. It forms when the stock rallies again, but fails to reach the level of the left shoulder.
- The right shoulder: This is the third peak in the pattern, and it should be lower than both the left shoulder and head. Sometimes, however, it can be hard to spot a right shoulder because after forming the head, stocks often pull back sharply (known as a head fake). If this happens, just wait for prices to bounce off support and then continue lower to form the right shoulder.
Head and shoulders pattern Entry and Exit
These include the double top and bottom, triple top and bottom, and cup and handle patterns. Each of these patterns has its own distinct characteristics that can be used to signal a possible change in market direction.
The head and shoulders pattern is one of the most popular reversal patterns among traders. This is likely due to its clear-cut structure and easy-to-identify formation. The pattern is created when there is a peak followed by two lower highs, with the second low being below the first. This creates the left shoulder, head, and right shoulder formation that gives the pattern its name.
Head and shoulders Pattern Bullish or Bearish PDF
The double top and bottom pattern is another reversal pattern that can be used to signal a potential change in market direction. This pattern is created when there are two consecutive highs or lows that are roughly equal in price. This creates a “double” top or bottom formation that can be used to indicate a possible reversal.
The triple top and bottom pattern is similar to the double top and bottom pattern, but with three instead of two highs or lows. This creates a “triple” top or bottom formation that can be used to signal a potential change in market direction.