INVERTED HEAD AND SHOULDERS PRICE ACTION
This chart pattern starts forming with bears already in control of the exchange rate's downtrend. As bulls enter the market, they are tested by the bears at three different occasions, the first and third ones are around the same rate, and the second one being the strongest push performed by the bears. After the third bulls' successful reversal, they finally break the neckline created by the bears, and the exchange rate starts an uptrend.
Let's break down the pattern formation!
In a downtrend, price action finds the first resistance (1) that forms left shoulder's low.
Price action reverses direction from the first resistance (1) and goes upwards till it finds the first support (2), completing the left shoulder formation.
Price action reverses direction from the first support (2) and goes downwards till it finds the second resistance (3) that forms the pattern's head, which must be lower than the first resistance (1)
Price action reverses direction from the second resistance (3) and goes upwards till it finds the second support (4) that completes the head formation, which will be around the same rate of the first support (2)
Price action reverses direction from the second support (4) and goes downwards till it finds the third resistance (5) that forms the right shoulder's low, which will be around the same rate of the first resistance (1).
The pattern is completed when price action reverses direction from the third resistance (5) and goes upwards till it breaks the neckline at point (6)
Entry: after breaking the neckline at point (6), either with an entry after the breakout, or after a possible retest of the neckline.
Take profit: identified by measuring the vertical distance from the head (3) to the reversal point from neckline that initiated the right shoulder (4), that measurement is then applied from the breakout rate (6)
Stop loss: can either be the neckline breakout rate (6), or the right shoulder's low (5)
This chart pattern starts forming with bears already in control of the exchange rate's downtrend. As bulls enter the market, they are tested by the bears at three different occasions, the first and third ones are around the same rate, and the second one being the strongest push performed by the bears. After the third bulls' successful reversal, they finally break the neckline created by the bears, and the exchange rate starts an uptrend.
Let's break down the pattern formation!
In a downtrend, price action finds the first resistance (1) that forms left shoulder's low.
Price action reverses direction from the first resistance (1) and goes upwards till it finds the first support (2), completing the left shoulder formation.
Price action reverses direction from the first support (2) and goes downwards till it finds the second resistance (3) that forms the pattern's head, which must be lower than the first resistance (1)
Price action reverses direction from the second resistance (3) and goes upwards till it finds the second support (4) that completes the head formation, which will be around the same rate of the first support (2)
Price action reverses direction from the second support (4) and goes downwards till it finds the third resistance (5) that forms the right shoulder's low, which will be around the same rate of the first resistance (1).
The pattern is completed when price action reverses direction from the third resistance (5) and goes upwards till it breaks the neckline at point (6)
Entry: after breaking the neckline at point (6), either with an entry after the breakout, or after a possible retest of the neckline.
Take profit: identified by measuring the vertical distance from the head (3) to the reversal point from neckline that initiated the right shoulder (4), that measurement is then applied from the breakout rate (6)
Stop loss: can either be the neckline breakout rate (6), or the right shoulder's low (5)