Wysetrade
This video teaches how to use the head and shoulders pattern to predict trend changes in trading. Imperfect patterns can still be valid.
Mastering the Head and Shoulders Pattern: Strategies and Techniques
Introduction
Learning how to use chart patterns, such as the Head and Shoulders pattern, is crucial for understanding the movement of price and what buyers and sellers are doing in real time. The Head and Shoulders pattern is a reversal pattern often used to identify a trend change from an uptrend to a downtrend.
Anatomy of the Head and Shoulders Pattern
The Head and Shoulders pattern consists of four main components: the left shoulder, the head, the right shoulder, and the neckline. Once the neckline is broken, the pattern is complete and confirms the trend change.
The Inverse Head and Shoulders Pattern
The Inverse Head and Shoulders pattern is a reversal pattern that identifies a trend change from a downtrend to an uptrend. It consists of the left shoulder, the head, the right shoulder, and the neckline. Once the neckline is broken and price makes a higher high, the pattern is complete and confirms the trend change.
Perfect and Imperfect Head and Shoulders Patterns
Picture perfect Head and Shoulders patterns are not always realistic and oftentimes appear rough approximations of what the pattern should be. Imperfect Head and Shoulders patterns still remain valid if the reversal rules are not jeopardized.
Understanding Imperfections in the Patterns
Imperfections in the pattern do not affect the core price action reversal rules and the focus of the Head and Shoulders pattern remains the lower high followed by the lower low, which gives a clear moving downtrend.
Pullback Entry at the Neckline
Taking a pullback entry at the neckline instead of a breakout entry can be a smart strategy for identifying entry points, especially during noisy markets.
Conclusion
Mastering the Head and Shoulders pattern includes understanding its anatomy, identifying perfect and imperfect patterns, and using advanced strategies and techniques for entry points. Traders must learn to identify rough approximations of the pattern and be able to read between the lines to find the best trades.
