Forex Chart – Head and Shoulders
Head and Shoulders (HnS) patterns are one of the most popular patterns and chart patterns that are reliable for technical analysts. If we imagine from its name, the pattern is formed from one head and two shoulders and resembles the shape of our head and two shoulders. The Hns pattern indicates a reversal pattern, ie the appearance of this pattern will give a reversal signal from the previous trend.
We recognize there are two forms of HnS patterns namely HnS (as usual) and Inverted HnS (inverted form). The HnS pattern gives a signal that the pair’s price will decline after the pattern finishes its shape and its rise after the uptrend. While the Inverted HnS pattern gives a signal that the pair will rise after completing its shape and its appearance after the downtrend.
HnS pattern is formed from four main components of the two left shoulders, one head and neckline. Confirm the setup of this HnS pattern if the neckline is broken after forming the second shoulder. Head and shoulder components are obtained from top and valley analysis of Dow Theory (Higher High Higher Low, Lower High Lower Low) and the neck boundary component is the support and / or resistance level.
Top HnS Patterns
In order to identify this pattern it should be understood that there are often unequal shoulders. Even the price wave formed could be in the form of an ascending trend. The neckline is a trend line (not necessarily horizontal).
The appearance of the HnS pattern as this uptrend indicates that the price will reverse down. You can setup a SELL on break on the neckline when the second shoulder is formed. Because the price confirmation falls on the neckline, if the neckline is broken.
Inverted HnS Pattern
This inverted HnS pattern is exactly the opposite of the HnS top. Gives the pair price signal to move up. Occurrence is usually when the descending trend will end and the pair will rebound after completing the pattern.
You can setup BUY on break on the boundary line of the neck when the second shoulder is formed. Because the confirmation of the price rises lies on the neckline, if the neckline is broken.
Well, many analysts and traders use this pattern to setup trading. How about you?