The Head And Shoulders Pattern
The first price action reversal pattern we're going to look at is the head and shoulders pattern. Without doubt one of the most popular and well known price
action patterns in the market, the head and shoulders formation is one which all price action traders need to memorize and understand if they want to become
good at spotting reversals using price action. As you've probably already guessed, the head and shoulders pattern is a reversal pattern which has a swing
structure very similar to that of person's head and shoulders.
You can see from the image the structure of the pattern does bear a striking resemblance to somebody standing up with their head straight and their
shoulders level with one another. Most head and shoulders patterns are supposed to look like the one you can see in the image above, but a large
percentage of them will actually have features which are a little different from one another. For example, you might see a pattern form with one of the shoulders being a little bit higher than the other, or the distance of two shoulders from the head will be smaller or bigger than what you can see in the pattern above. These small differences do not alter the pattern in any meaningful way. So long as the head is always found in the middle and the two shoulders are found to be either side, it's a head and shoulder pattern.
If the high of the right shoulder is found to be below the swing low of the move up which created the head, then it's not a head and shoulders pattern and should not be treated as such.
Rules:
1) measure from top of head to neckline for excepted target goal, once price action breaks neckline.
2) These patterns are infrequent, but powerful on 1 hour or higher time frames.
The first price action reversal pattern we're going to look at is the head and shoulders pattern. Without doubt one of the most popular and well known price
action patterns in the market, the head and shoulders formation is one which all price action traders need to memorize and understand if they want to become
good at spotting reversals using price action. As you've probably already guessed, the head and shoulders pattern is a reversal pattern which has a swing
structure very similar to that of person's head and shoulders.
You can see from the image the structure of the pattern does bear a striking resemblance to somebody standing up with their head straight and their
shoulders level with one another. Most head and shoulders patterns are supposed to look like the one you can see in the image above, but a large
percentage of them will actually have features which are a little different from one another. For example, you might see a pattern form with one of the shoulders being a little bit higher than the other, or the distance of two shoulders from the head will be smaller or bigger than what you can see in the pattern above. These small differences do not alter the pattern in any meaningful way. So long as the head is always found in the middle and the two shoulders are found to be either side, it's a head and shoulder pattern.
If the high of the right shoulder is found to be below the swing low of the move up which created the head, then it's not a head and shoulders pattern and should not be treated as such.
Rules:
1) measure from top of head to neckline for excepted target goal, once price action breaks neckline.
2) These patterns are infrequent, but powerful on 1 hour or higher time frames.