Head and Shoulders Pattern

 

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This chart pattern i was widely used buy so many forex traders   . Head and shoulders are a reversal formation and indicate a topping reversal after a bullish trend.At the same time, this chart pattern has its opposite equivalent – inverted (or inverse) head and shoulders. The inverted head and shoulders typically appears after a bearish trend and calls for a bottom in price. Below you will find illustrations of this pattern:

As you see, the head and shoulders formation really looks like a head with two shoulders. After an uptrend, the price creates a top, then it corrects. It creates a second, higher top afterwards and then it drops creating a third, lower top – head and shoulder.

It is the same with the inverted head and shoulders but instead of an uptrend we have a downtrend and instead of tops the price creates bottoms, as shown on the image above.

The bottoms forming the head are two points which create the signal line of the formation. This signal line is called a Neck Line. When the price closes a candle beyond the neck line, the head and shoulder formation is confirmed and we can enter the market with the respective position. This position should be short in case of head and shoulders and long in case of inverted head and shoulders. Your stop loss should be placed right above the last shoulder of the formation.