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BASIC TRADING PATTERNS PART 1
The Head and Shoulders pattern signals a bearish reversal. It has three peaks
1. Left Shoulder: First peak, then a drop.
2. Head: Higher peak, then a drop.
3. Right Shoulder Lower peak similar to left shoulder, then a drop.
4. Neckline A support line connecting the lows after the shoulders.
How to Trade
- Entry Go short when the price breaks below the neckline.
- Stop Loss Place above the right shoulder or head.
- Target Measure the head-to-neckline distance and project it downward from the neckline break.
The Inverse Head and Shoulders is a bullish reversal pattern with three troughs: the left shoulder, head (lowest), and right shoulder. Key features:
1. Left Shoulder: First trough in a downtrend.
2. Head: Lowest trough.
3. Right Shoulder: Third trough, similar to the left.
4. Neckline: Resistance line connecting rally highs. Breakout above it confirms the pattern.
5. Volume: Declines during formation, spikes on breakout.
How To Trade
- Look for three troughs with the head as the lowest.
- Confirm breakout above the neckline with rising volume.
- Price target = head-to-neckline distance projected upward from breakout.
