In today’s video we will teach you how to use the Head and Shoulders pattern to find high-percentage trade set-ups in any liquid market around the world.
The Head and Shoulders Pattern is not only one of the most commonly-known day trading patterns, it is also the easiest to find on a chart and it has a VERY high percentage of success when used correctly.
The Head and Shoulders pattern is a reversal pattern that is most commonly-used at market-tops to predict a reversal before price moves lower off the highs. You can also look for the Inverted Head and Shoulders Pattern as well, which predicts a bullish reversal at market-bottoms.
Head and Shoulders Pattern:
The typical Head and Shoulders pattern is formed with three (3) consecutive peaks, with the middle peak (head) being the highest, and the two outside peaks (shoulders) being lower and usually of equal size to each other. We connect the lows of each peak with a trend-line to form support (neck line).
Inverted Head and Shoulders Pattern:
The Inverted Head and Shoulders pattern is formed with three (3) consecutive troughs, with the middle trough (head) being the lowest, and the two outside troughs (shoulders) being shallower and usually of equal size to each other. We connect the highs of each trough with a trend-line to form resistance (neck line).
Trading the Head and Shoulders Pattern:
Day Trading with the Head and Shoulders pattern is very easy, and even a beginner trader can find these and execute trades on any market they chose.
· Step 1: Define the Head and Shoulders pattern on the chart
· Step 2: Entry #1 is triggered at the break of the support at the ‘Neck Line’
· Step 3: Stop-loss #1 is placed above the previous shoulder peak
· Step 4: Profit-target uses the A-B = C-D formula, which means the profit-target is the same distance as the height of the Head, the highest peak.
· Step 5: Entry #2 occurs with a re-test of the neckline, which now acts as resistance
· Step 6: Stop-loss #2 is placed above the swing-high that occurred at the neckline resistance.
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