How to trade Forex with Head and Shoulders
Head and Shoulder are one direction reversal formations such as double top and double bottom .Formed by a highest price (shoulders) then followed by a higher price (head) and followed by a lower price (shoulders). And a neckline is formed from two valleys (the lowest price) with a slope that can tend to fall or rise. If the slope of the neckline is likely to fall, it is likely that the reversal of the downtrend will be stronger.
From the chart above, it is clear that two shoulders (a shoulder) and a head (head) are formed after the uptrend pattern. And with the formation of this pattern the step that needs to be done is to open a SELL position below the neckline with the take profit target of the price range between the neckline and the head as shown below.
Even though it crossed our minds that prices will continue to move down, we must keep in mind that we should not ALWAYS and forget about risk management.
There are two types of head and shoulders patterns:
- Head and shoulders (as discussed above).
- Inverted head and shoulders (we will discuss below).
Inverted Head and Shoulders
is the pattern of head and shoulders that are reversed and formed after a strong downtrend pattern appears and how to use it is the same when the head and shoulders pattern is formed which is BUY above the neckline.
After looking at the chart above, the next step is to open a BUY position with the price above the neckline and for the take profit price target the price range between head and neckline ( Always remember, don’t be greedy or greedy 🙂 )
After learning the head and shoulders don’t forget to always remember the risk management even though sometimes we are sure that the price will continue its movement. This needs to be done so that we don’t get stuck with feelings 🙂 which ultimately takes up all our capital.