Head & shoulders pattern: a bearish reversal setupThe 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!
