would negate the pattern. And while theres no exact rule for the distance, it should be evident from a quick glance. Here you can see that this is just like a head and shoulders pattern, but its flipped upside down. Why is that, you ask? Neither shoulder can be above the head You cant raise your shoulders above your head, right? I know. The shoulders should be on the same horizontal plan This one is a bit tricky to explain, so an illustration seems more appropriate. Im a big believer in keeping things simple. It contains everything you need to know to maximize profits and minimize losses while trading them.
Figure 4: Head and Shoulders Pattern example, from the above two examples of head and shoulders as well as the inverted head and shoulders price patterns; we can see that this is a highly reliable pattern, especially when analyzed with line charts. Now, assuming my stop is above the right shoulder, am I going to wait for the market to take me out if it closes back above the neckline?
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In order of occurrence, they are: Uptrend, left shoulder, head, right shoulder, neckline. You can see that prices move up to make a peak, fall to support and bounce, move up and make another higher peak, fall back to support and bounce to make the 2nd shoulder. Get daily Forex setups and lessons from me on WhatsApp. That includes how to enter, where to place your stop loss, measured objectives and much more. Pro Tip: If you have to question forex trading times the validity of a pattern, it probably isnt worth the risk. Exclusive Bonus: Download the Head and Shoulders PDF Cheat Sheet that will show you everything you need to know to make money from this reversal pattern. That would be our signal to go short (sell). So as an added layer of defense, its best to think of them as general areas rather than specific levels. How can a few simple swing highs accomplish this? So by this point, youre familiar with the attributes of the pattern, where to find it and most importantly, how to enter and exit for profit. This distance is approximately how far the price will move after it breaks the neckline.