The Head and Shoulders reversal formation

December 8th, 2007 expert Posted in FOREX TRADING ENTRY STRATEGIES, FOREX TRADING EXIT STRATEGIES |

Online Forex trading concepts: Price Patterns, Head and Shoulders, Channels

The Head and Shoulders formation is one of the most wellknown reversal formations known by Technical Analysts. As is shown in the chart below the Head and shoulder formation consists of a Main Head with 2 shoulders on each side. A neckline can be drawn joining the bouncing points. It is not uncommon for the price to break through the neckline  and then retest it before continuing in the reversal direction.  The head and shoulders can also be viewed as a change of channel formation.

The Head and Shoulders is traded by trading the breakout of the neckline and placing a stop at the top of the breakout shoulder. The target is the height of the head and shoulders.

We trade the Head and Shoulders even when the neckline is non horizontal.

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