Big head and shoulders formation happening at the top trend line, once it completes we're looking to SELL with a great risk to reward ratio.
Comments
dleet
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Forgive me for being a newbie. but now that the right shoulder is finished, its a clear indicator of a reversal from the uptrend correct? and how is this formation usually used? once the head is formed sell a bit, or wait for the shoulder to be formed and use it as a reversal signal
Balazs
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Thanks for the question. Firstly, the right shoulder is not quite finished yet, it must reach the common horizontal line (neckline) that goes from the left shoulder all the way to the right. No patterns or formations for always 100% correct all the time, and they should be used in conjunction with your strategy. If you enter the trade at the head you don't really know if it's a head and shoulders formation yet. Typically we wait for a completion of the right shoulder and the price must cross the neckline. See this image: