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tradingwizzard

Head and Shoulders

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Head and shoulders and inversed head and shoulders patterns fall into the reversal patterns category and they are extremely common on all the time frames. So, regardless of what you are trading, currencies, indices, etc, and regardless of the time frame you are looking at (hourly, 4hours, daily, even higher time frames), head and shoulders and inversed head and shoulders are extremely common and should be taking into consideration as they are powerful reversal patterns.

 

The beauty of such a pattern is that it is extremely visible and it is coming with a measured move.

 

Like the name suggests, the head and shoulders pattern is formed by a head (which is the spike to the upside), a left and a right shoulder and a neckline. By taking the amplitude of the head (the distance price travels from the neckline to the top of the head) and projecting it by the moment the neckline is broken to the downside the result is called the measured move of the head and shoulders.

 

The opposite is true for the inversed head and shoulders pattern, basically this one being a mirroring image of the previous one. Head and shoulders are reversal patterns in uptrends, while inversed head and houlders are reversal patterns in downtrends.

 

The above represent the theory regarding the pattern, however, there are some tips and tricks to be considered when actually trading such a pattern:

 

- look for the time taken for the shoulders to form to be almost the same. This should be a confirmation that the pattern is valid. Moreover, what one can do is to take a look at the time taken for the left shoulder to consolidate (as this is the first one), measure the time taken to consoliadate and then project the respective time on the right side when the right shoulder starts, this representing an educated guess about the possible end of the right shoulder;

- drawing the neckline is a tricky thing, as most of the traders draw the neckline connenctign the highs of the candles that form the two shoulders. While this may work, a more appropriate neckline should be drawn trying to connect the bodies of the candles and trying to avoid the shadows. In this way, the measured move is smaller and the trader avoid the risk of waiting for the measured move to come and being traped waiting for the last pip/point;

- the measured move is just a target, but in order to be on the safest side look for it more in terms of price to reach 70-75% of it as this is a good enough confirmation;

- usually the neckline is retested after being broken, but this is not mandatory. Because of that, sometimes traders wait for the retesting in order to enter a trade but such a retest might not happen.

 

Below is a current audcad 4h chart and it shows a possible inversed head and shoulders pattern with all the elements discussed above.

 

Any other current head and shoulders or inversed head and shoulders pattern you might see, regardless of the time frame and the instrument traded, feel free to upload it in this thread so that we can see as many as them possbile and learn from all of them.

audcadh4tl.thumb.png.12214e1dcfd9ae376659663c79ac88f9.png

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I often realize that when a head and shoulders formation is made, the price moves against the formation, like for head & shoulders it does down afterwards and for inverted head & shoulders it goes up..

 

Probably one of the best on-chart indicator out there..

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I often realize that when a head and shoulders formation is made, the price moves against the formation, like for head & shoulders it does down afterwards and for inverted head & shoulders it goes up..

 

Probably one of the best on-chart indicator out there..

 

you mean after the measured move is done? ....I don't quite understand...

 

Thanks.

 

TW

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Wiz- chart in post 4 looks like a cup and handle to me.You also seem to be ignoring many H&S patterns on your charts.I don't look for these patterns but I didn't know they were "valid" when running at an angle.

Measured moves- why not look for them regardless of the pattern? A swing high to swing low is there in any case whether the pattern is there or not.

The measured move happens ...because there was a head and shoulders ...I think not.

If the trend on the higher time frame is up then from the recent low (what you call a head" and which ultimately is...the recent low.. the only undisputable fact in your thesis in fact) price will continue it's uptrend.First it will reach the recent high- you call it a shoulder...again the only fact is that it's the recent high- it will then exceed that high or the uptrend is finished.

For the measured moved to have any quantifiable edge,then price must reach the predicted target and reverse immediately somewhat from there often enough for you to believe there is something there worth testing....is that the case? The measured move can be seen because price turns at the target?

 

For me,this all looks a little bit like pseudoscience and you may as well post a link to one of the 25,659 TA sites that will show the same thing..probably for the rest of our lives.

Erase,rewind and begin the thread as if you'd never heard of a H&S...from a neutral scientific point of view rather than the perception bias you show here.

 

Compared to the science world TA has very low standards..it's actually shocking

 

hi mits, thank you for your thoughts....these kind of patterns/traits are happening especially on currency markest (that I do trade) and because of the high volatility implied sometimes they are not looking "by the book" if you know what I mean.....these are just live examples of possible (note the word) head and shoulders or inversed head and shoulders patterns......from my point of view the one the gbpnzd chart is still valid

 

TW

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In case of H&S patterns I could say

1. The neckline is a simple resistance line , the visibility of the shoulders and head as described by trading wizard …helps …is a kind of alarm that this resistance line may be it would be broken.

2. The measured move is o.k as described by trading wizard BUT ONE SHOULD TAKE INTO CONSIDERATION the next resistance above the neck line , traders forget this.!!

In case of inversed H&S patterns the neck line is a support line and …so on

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In case of H&S patterns I could say

1. The neckline is a simple resistance line , the visibility of the shoulders and head as described by trading wizard …helps …is a kind of alarm that this resistance line may be it would be broken.

2. The measured move is o.k as described by trading wizard BUT ONE SHOULD TAKE INTO CONSIDERATION the next resistance above the neck line , traders forget this.!!

In case of inversed H&S patterns the neck line is a support line and …so on

 

I agree....I would love for you to put a chart here with a head and shoulders and show us how u treat it

TW

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the chart from Greek Index Ftse ase 20 , ( now ftse 25 ) period 2009

 

Support works well before the measured move.

 

The suggested 70..75 % by trading wizard IS A COMPLETE SUCCESS!!!

5aa71202c60f2_headshouldersFTSEASE20GREECE2009.JPG.7d052f4e733a675e9627c696186036eb.JPG

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the chart from Greek Index Ftse ase 20 , ( now ftse 25 ) period 2009

 

Support works well before the measured move.

 

The suggested 70..75 % by trading wizard IS A COMPLETE SUCCESS!!!

 

indeed your example looks nice.......however, I do have one thing to add: head and shoulders and inversed head and shoulders are reversal patterns and they tend to follow a bullish trend (in the case of the head and shoulders) or a bearish trend ( in the case of the inversed head and shoulders)......yours here........is a bit "fishy" from that point of view.....

 

otherwise, everything seems to be respected

TW

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Tr. W : I agree it is a bit ‘’fishy’’ ‘’by the book’’, thanks for pointing this.

If you read my first post I wrote that a neckline can be seen as a support line . This gives support or is broken, retested etc.

I named it as ‘’neckline’’ as the formation above it reminds of H&S formation .

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possible inversed head and shoulders pattern in audcad here in light of Canadian GDP and RBA cash rate decision......neckline broken, re-tested..........moving higher should begin with parity in sight

 

seems to work pretty nice, price above 0.98 now....parity here we come

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In case again of FTSE _ASE 20 GREECE WEEKLY 11 10 2013

 

The first neckline , light blue colour,has a clear S-H-S formation but fails to break upwards and give the neasured move because of a resistance .The resistance'' worked ''.

Now one may consider a new ''candidate '' neckline, pink colour with the right shoulder ''under possible construction''.

5aa71203279fd_FTSE_ASE20GREECEWEEKLY11102013.JPG.50dd41e7b1fceb7f17d2f6bc119f527b.JPG

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In case again of FTSE _ASE 20 GREECE WEEKLY 11 10 2013

 

The first neckline , light blue colour,has a clear S-H-S formation but fails to break upwards and give the neasured move because of a resistance .The resistance'' worked ''.

Now one may consider a new ''candidate '' neckline, pink colour with the right shoulder ''under possible construction''.

 

in your case here it seems that the time taken for the right shoulder is a bit bigger.....so might be something else.......let's say it is not the clearest example

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