Head & Shoulders and Inverted Head & Shoulders Patterns
Head & Shoulders and Inverted Head & Shoulders patterns produce an approximate 85% win rate, the most statistically accurate of all of the patterns I have covered.
Head & Shoulders Pattern
The head & shoulders pattern is defined by two swing highs with a higher high in between. These are considered the head and shoulders. This pattern is considered successful when price extends at least the distance from the neckline to the head, following the price break.
Inverted Head & Shoulders Pattern
The inverted head & shoulders pattern is defined by two swing lows with a lower low in between. These are considered the head and shoulders. This pattern is considered successful when price extends at least the distance from the neckline to the head, following the price break.
Pending Orders
When you recognize a head & shoulders or inverted head & shoulders pattern, you can either A enter at market price once the breakout occurs or B set a pending order.
The pending order you would want to set would be just below the neckline break for a head & shoulders pattern or just above the neckline break for an inverted head & shoulders pattern.
In the example below, you see an inverted head & shoulders pattern. The second trend line is the neckline break and the pending order would be set just above for a long position.
Trail Stopping & Risk To Reward
After you have decided whether you will be entering at market price or setting pending orders, you must have a trading plan in place for take profit levels and solid risk management.
In the example to the right you see an inverted head & shoulders pattern. The next lines represent TP (take profit) levels. You would set multiple TP orders with risk to reward of 1:1, 2:1, 3:1 and a 4th position of 3:1 with trail stop.
In my final lesson of this 10 part series, I will be covering a run through of everything you have learned throughout the course and giving you some golden tid-bits to take with your trading journey
See you then!
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