This is a small guide and clarification on Key points how to identify and trade a Head and Shoulders pattern.
First off A head and shoulders is made of three key components
A) Left shoulder
B) Head
C) Right shoulder
In this formation at the attempt of reversal from BTC 5.40% , we can clearly identify these components. Some counter arguments have sprouted around where they are saying this is an invalid H&S pattern because the Head is not just a V shape but rather a double bottom . This argument is easily solved by knowing that there are COMPLEX H&S patterns.
Complex H&S patterns involve instances where we have double shoulders on each side, or a double head ( Current Case )
With that in mind, Let's Analyse the volume on each peak.
Left shoulder low was of significant volume . The downtrend was still intact and sell pressure was still the majority.
Head low had lower volume thus signaling that sell pressure is diminishing. At this point the downtrend is broken and we have a break of recent low.
Right shoulder low has even lower volume than head which further assures the pattern.
One major thing to keep in mind when trading this pattern is, UNTIL the Neckline is broken, the pattern is NOT complete. Buying before break of Neckline is premature buying in attempt to get a better position but a riskier bet since the pattern CAN FAIL at this point.
We can see there were many premature buyers with the right shoulder. This often happens when the price meets the low of the left shoulder.
Until we break the neckline this pattern is unconfirmed and can fail. However the volume along with the lows seems promising as diminishing sell pressure is happening. The next important part for complete H&S should be a massive influx in volume upon breakout, and unfortunately right now the volume is still very low even in this Daily candle showing us that there is not the needed power to complete the H&S .
Best Trades here are:
Short at neckline with SL above neckline
Long on neckline breakout with very high volume OR Neckline drawback.
Till these criterias are met any trade right now is a gamble on future prediction, Happy trading.
First off A head and shoulders is made of three key components
A) Left shoulder
B) Head
C) Right shoulder
In this formation at the attempt of reversal from BTC 5.40% , we can clearly identify these components. Some counter arguments have sprouted around where they are saying this is an invalid H&S pattern because the Head is not just a V shape but rather a double bottom . This argument is easily solved by knowing that there are COMPLEX H&S patterns.
Complex H&S patterns involve instances where we have double shoulders on each side, or a double head ( Current Case )
With that in mind, Let's Analyse the volume on each peak.
Left shoulder low was of significant volume . The downtrend was still intact and sell pressure was still the majority.
Head low had lower volume thus signaling that sell pressure is diminishing. At this point the downtrend is broken and we have a break of recent low.
Right shoulder low has even lower volume than head which further assures the pattern.
One major thing to keep in mind when trading this pattern is, UNTIL the Neckline is broken, the pattern is NOT complete. Buying before break of Neckline is premature buying in attempt to get a better position but a riskier bet since the pattern CAN FAIL at this point.
We can see there were many premature buyers with the right shoulder. This often happens when the price meets the low of the left shoulder.
Until we break the neckline this pattern is unconfirmed and can fail. However the volume along with the lows seems promising as diminishing sell pressure is happening. The next important part for complete H&S should be a massive influx in volume upon breakout, and unfortunately right now the volume is still very low even in this Daily candle showing us that there is not the needed power to complete the H&S .
Best Trades here are:
Short at neckline with SL above neckline
Long on neckline breakout with very high volume OR Neckline drawback.
Till these criterias are met any trade right now is a gamble on future prediction, Happy trading.