Let’s discuss about a chart pattern called as H&S pattern. Here we will learn, how to identify, understand and trade the H&S pattern. Now to give you a brief about the head and shoulders pattern, these are actually formed at the tops and bottoms of a reversal. So basically these are reversals chart patterns n we take the help of these kind of pattern to know the bullish or bearish trends, when they r about to occur. Now coming to the accuracy of the head and shoulders pattern, as we all know none of the patterns are 100% reliable, so I would say the success rate of this pattern is around 60 to 70%. But yes this is one of the most reliable technical formations.

Alright so having that said, lemme jump on to the kind of formations that occur in H&S pattern.

So basically we have 2 kind of formations :

  • Head and Shoulders Tops pattern : When get this pattern it is the sign of a reversal from bullish or bearish trend. This develops after a strong up trend.
  • Head and Shoulders Bottoms pattern : When get this pattern it is the sign of a reversal from bearish or bullish trend. This develops after a strong down trend.

Now when trading with the head and shoulders pattern one thing to remember is the Neckline. The neckline is the most important thing that we need to keep in mind when trading the head and shoulders pattern bcoz that is the first thing that we r gonna draw on the charts. We take the Neck Line as the Trigger Line. One more thing to remember here is that the neckline that we draw, it is not important for that to be flat or parallel. It can be slightly up or down.

Now coming to three main aspects of trading head and shoulders pattern :

For H&S TOP Pattern

  • When to enter the trade : Enter the trade when the candle stick closes below the neck line after the second shoulder.
  • Where to place the stop loss : Stop Loss will be the second shoulder or the recent swing high, before the candle that close below the neck line.
  • When to exit the trade : The point difference between the head and the neck line (Refer picture for understanding)

For H&S BOTTOM Pattern

  • When to enter the trade : Enter the trade when the candle stick closes above the neck line after the second shoulder.
  • Where to place the stop loss : Stop Loss will be the second shoulder or the recent swing low, before the candle that close above the neck line.
  • When to exit the trade : The point difference between the head and the neck line (Refer picture for understanding)

So that’s it guys, it’s quite simple, is not it. Just make it a habit of watching n reading the charts, so that u can start identifying these patterns n once u identify the pattern, u know how to trade them. Also as I mention this always, back test this before applying it on live markets.

To view the recorded session, please go to : https://www.youtube.com/watch?v=5hgHzHoE8wc

Happy Learning n Trading !!!