The "Head and Shoulders": Real success rates.Inverted Head and Shoulders: WATCH volumes when the neckline breaks!!
Here is what we can say about the success rate of the inverted head and shoulders pattern in trading:
-The inverted head and shoulders pattern is considered one of the most reliable chart patterns to anticipate a bullish reversal.
-According to some sources, the success rate of this pattern would be very high, with around 98% of cases resulting in a bullish exit.
-More precisely, in 63% of cases, the price would reach the price target calculated from the pattern when the neckline is broken.
-A pull-back (return to the neckline after the break) would occur in 45% of cases.
-However, it should be noted that these very optimistic figures must be qualified. Other sources indicate more modest success rates, around 60%.
-The reliability of the pattern depends on several factors such as respect for proportions, neckline breakout, volumes, etc. A rigorous analysis is necessary.
-It is recommended to use this pattern in addition to other indicators and analyses, rather than relying on it blindly.
In conclusion, although the inverse head and shoulders pattern is considered a very reliable pattern, its actual success rate is probably closer to 60-70% than the 98% sometimes claimed. It remains a useful tool but must be used with caution and in addition to other analyses.
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Head and Shoulders:
Here is what we can say about the success rate of the head and shoulders pattern in trading:
-The head and shoulders pattern is considered one of the most reliable chart patterns, but its exact success rate is debated among technical analysts. Here are the key takeaways:
- Some sources claim very high success rates, up to 93% or 96%. However, these figures are likely exaggerated and do not reflect the reality of trading.
- In reality, the success rate is likely more modest. One cited study indicates that the price target is reached in about 60% of cases for a classic head and shoulders pattern.
- It is important to note that the head and shoulders pattern is not an infallible pattern. Its presence alone is not enough to guarantee a trend reversal.
- The reliability of the pattern depends on several factors such as respect for proportions, the breakout of the neckline, volumes, etc. Rigorous analysis is necessary.
- Many experienced traders recommend using this pattern in addition to other indicators and analyses, rather than relying on it blindly.
In conclusion, while the head and shoulders pattern is considered a reliable pattern, its actual success rate is probably closer to 60% than the 90%+ sometimes claimed. It remains a useful tool but should be used with caution and in conjunction with other analyses.
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NB: In comparison, the classic (bearish) head and shoulders pattern would have a slightly lower success rate, with around 60% of cases where the price target is reached.
