Head and Shoulder pattern

[dvid]

Hi. I'm new in this forum and didn't find the right topic to post this. I would like to know more about some patterns that I would like to trade. I have been trading for a while but with other strategies, so now I would like to expand and improve my knowledge with the following pattern.

First one is Head and shoulders. So I understand the concept of how it works, but I don't really understand how should I place my entry and stop loss. Should I use candle stick chart or the line chart to trade with this strategy? Can somebody please help me with this? It would be a very big help.

 

[Enivid]

Welcome to the Forum, dvid!

I recommend analyzing chart patterns using candlestick charts. When I trade head-and-shoulders pattern, I set my entry to the line just below the neckline - I calculate its location as 10% of the pattern's height below the neckline. I put my stop-loss to the high of the breakout candle. You can see an example of how I trade a classic H&S pattern here:
https://www.earnforex.com/blog/audjpy-daily-chart-shows-head-and-shoulders-pattern/

 

[dvid]

Hi. Thanks for the answer, it will definitely help me. Could you also help me with other patterns like double tops?

 

[Enivid]

When I trade double-tops, I follow the same rules which I use with head-and-shoulders.

 

[dvid]

thanks man, really appreaciated. by the way really liked your topic.

 

[DRFXTRADING12]

This is actually a very popular Market Pattern especially when it comes to trend changes. I traded this pattern a few weeks ago on the EURO JPY Daily Chart as it formed a Large Range Consolidation for a nice 100 Pips...


DAILY CHART BEAR CROWN/HEAD AND SHOULDERS PATTERN

What you will notice however, is that even though the market will often give the perfect Head and Shoulders/Bear Crown Setup...

...sometimes the market will give the Left and Centre Tips( Shoulder/Head) but not give a Right Shoulder and simply continue the new trend direction with Single Candles and Candlestick Formations. In this case, I simply used a Setup on the 4 Hour Chart that corresponded to a Daily Candle..(placing my Stop Loss above the High of the 4H Setup and Trend Line).

4 HOUR CHART ENTRY & STOP LOSS PLACEMENT

TARGETS

In my case, my target was actually 100 Pips when trading within large patterns like these. Sometimes this target is hit before the Resistance/Support is hit..sometimes it coincides with them.


The thing about these patterns is that you cannot simply trade them in isolation. Like many other chart patterns, they can provide gains on their own but they will also fail if they are a part of a short, temporary move. This can also be dangerous if you attempt to do so on the lower time frames that can often be in conflict with what is taking place on the more powerful Larger Charts.

Double Tops are also very popular and were crucial to another trade made last week on the CAD JPY..

Below you will see an explanation of this trade as well as how Double Tops on the 4 Hour Chart helped to predict this reversal.

With Double Tops, there are actually 3 ways to trade them..

1. Placing your Stop Loss above the High of the 2nd "Top"

2. Or if that is too far away, wait until the market forms another Bearish Candlestick Pattern as part of the downtrend and place your Stop above the High of that one

3. If a Downtrend Line is formed, can also place your Stop there.

Duane
DRFXTRADING