Head & Shoulders pattern: 1st Confirmation #EURUSD

FX:EURUSD   Euro / U.S. Dollar
The Head and Shoulders pattern is one of the oldest recognised market structures. Representing a fully formed fractal when completed, the H&S confirms a short term reversal in trend.

Setting the levels 50%,100% and 200% on the Fib tool, I have devised a simple system of confirmation/action to take advantage (profit) from the completion of the Pattern.

1st confirmation occurs when price first breaks below a previous low. This establishes the Neckline (100%) a horizontal line drawn from the valley (armpit) of the left shoulder.

2nd confirmation occurs when price retraces back above 50%, forming the right shoulder. Agressive traders enter short above 50% with a stop loss at 0%, this entry statistically is higher risk but also higher reward.

Final confirmation occurs once the right shoulder has formed, price continues down with a candle closing below the neckline (100%). Conservative traders set a Sell limit at the neckline (100%) with a stop loss at 50% immediately after the candle close.

Both aggressive and Conservative traders close at least half of their position when price breaks below 200%

Although I consider the H&S Structure completed once 200% is reached, the levels outlined in my system continue to effect price for days/weeks and even months later.


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