is indicative of a continued move. So by this point, youre familiar with the attributes of the pattern, where to find it and most importantly, how to enter and exit for profit. Now for the really fun part how to trade and of course profit from a head and shoulders reversal. Step 4: Right shoulder, the right shoulder is where things come together. So really there are three ways to exit the trade should things turn sour.
Head and Shoulders Pattern - Trading the forex H S patterns
In order of occurrence, they are: Uptrend, left shoulder, head, right shoulder, neckline. Lets take another look at the same gbpjpy chart. The stop below the neckline serves as a protective measure in case a downward breakout is not confirmed. If you chose this first option to set your risk, it means youd have a 500 pip stop. To put it in hypothetical terms, thats.2 profit versus an 18 profit, assuming you risked 2 of your account balance on the trade. Lets discuss each in detail. Pro Tip: If you have to question the validity of a pattern, it probably isnt worth the risk. The head and shoulders pattern is understood to represent successive attempts by market participants to buy into a trend. Similarly, the neckline of the pattern may not occur in a perfectly horizontal foreign exchange usd to euro position. That way you can easily spot the most favorable head and shoulders to trade. Pro Tip: If you are on the daily chart, you would want to wait for a daily close below the neckline before considering an entry.