Table of Content

Head and Shoulders/Inverted Head and Shoulders Patterns: Indispensable Tools for Identifying Uptrends and Downtrends and Predicting Trend Changes.

Head and Shoulders/Inverted Head and Shoulders Patterns: Chart patterns that predict trend reversals, trading strategies and lucrative opportunities.

Head and Shoulders and Reverse Head and Shoulders  Patterns: Powerful Charting Tools for Trend Reversals


Head and Shoulders/Inverse Head and Shoulders Patterns

   One of the formations that offer the opportunity for profitable transactions in the Forex market is the Head and Shoulders and Inverted Head and Shoulders formations. These formations are a graphic formations that technical analysts love and usually point to trend reversals. The formation of Head and Shoulders and Inverted Head and Shoulders patterns on the charts gives traders an extraordinary advantage. This means that it is almost impossible for traders with less experience and newbies to overlook this.

Head and Shoulders Patterns: Graphic Pattern Predicting Trend Reversals
Head and Shoulders Pattern

The Head and Shoulders pattern, which is less visible on the charts and attracts almost all traders' attention as soon as it appears, occurs at the end of an uptrend. This pattern usually signals a Trend reversal. The formation consists of three peaks:

1. left Shoulder

2. Head

3. right Shoulder

Left shoulder - a point where the price rises and then experiences a correction. Head - located higher than the left shoulder and is a low where the price drops again. The right shoulder is the top after the start and a point where the price retraces into a correction.

It is important that the head is higher than the two shoulders in order for the Head and Shoulders formation to occur. Once the pattern is complete, a downtrend usually begins as the price drops below the head point. We can use the Head and Shoulders pattern to predict Trend reversals. Investors usually expect a trend change in the asset where the Head and Shoulders pattern is formed. Day traders, on the other hand, think that the price that falls below the head point at the completion of the Head and Shoulders pattern has the potential to fall as much as the height of the pattern, and accordingly  they trade.

 


Inverted Head and Shoulders Pattern: A Chart Pattern Predicting Uptrends
Inverted Head and Shoulders Pattern

   The Inverted Head and Shoulders pattern is the opposite of the Head and Shoulders pattern and usually occurs at the end of a downtrend. At this time, traders signal the start of an uptrend. The Inverted Head and Shoulders formation consists of three troughs:

1. left Shoulder

2. Head

3. right Shoulder

Left shoulder - a point where the price falls and then experiences a correction. Head - located at a lower point than the left shoulder and is a high at which the price rises again. Right shoulder - a trailing low and a point where the price re-enters a bullish action.

Below the Inverted Head and Shoulders pattern is a resistance level called the "neckline". The neckline is a horizontal support (resistance) level connecting the left shoulder and head points of the formation. The point where the formation is completed is the point where the price rises above the low point of the right shoulder and breaks the neckline upwards. This is the point where the pattern is confirmed and the uptrend can begin.

Like any technical analysis tool, both patterns can give false signals from time to time. To avoid this, it is more logical and less risky to use patterns with other analysis tools instead of using them alone.


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