Head & shoulders pattern: a bearish reversal setup
The Head & Shoulders pattern is a classic bearish reversal formation that signals a potential trend change from bullish to bearish. It consists of three peaks:
Left Shoulder: A rise followed by a decline.
Head: A higher peak forming the highest point of the pattern.
Right Shoulder: A lower peak, similar in height to the left shoulder.
Neckline: A support level connecting the lows of both shoulders.
Trading Strategy
1️⃣ Confirmation: A valid pattern forms when the price breaks below the neckline, confirming a potential downtrend.
2️⃣ Entry Point: Traders typically enter a short position when the price closes below the neckline.
3️⃣ Target: The expected price drop is approximately equal to the distance from the head to the neckline.
4️⃣ Stop Loss: Placed above the right shoulder to manage risk.
This pattern, seen in the NASDAQ 100 Futures (4H timeframe), highlights a strong reversal, leading to a significant downtrend after the neckline was broken.
Do you trade the Head & Shoulders pattern? Let’s discuss in the comments!
Left Shoulder: A rise followed by a decline.
Head: A higher peak forming the highest point of the pattern.
Right Shoulder: A lower peak, similar in height to the left shoulder.
Neckline: A support level connecting the lows of both shoulders.
Trading Strategy
1️⃣ Confirmation: A valid pattern forms when the price breaks below the neckline, confirming a potential downtrend.
2️⃣ Entry Point: Traders typically enter a short position when the price closes below the neckline.
3️⃣ Target: The expected price drop is approximately equal to the distance from the head to the neckline.
4️⃣ Stop Loss: Placed above the right shoulder to manage risk.
This pattern, seen in the NASDAQ 100 Futures (4H timeframe), highlights a strong reversal, leading to a significant downtrend after the neckline was broken.
Do you trade the Head & Shoulders pattern? Let’s discuss in the comments!
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.