Forex traders often use it as an indicator to enter a short-selling position or exit a long-position trade. Much like the inverse head and shoulders pattern, the head and shoulders pattern is characterized by three tops that form the shape of the head in the middle and two shoulders – the left shoulder and the right shoulder.
How to trade the head and Shoulders pattern?
In summary, to identify and trade the head and shoulders pattern, we suggest you follow the steps below: Wait for the breakout to occur and place a selling order once a candle closes below the neckline. It’s best to use Fibonacci retracement levels as a confirmation tool.
How to identify a head and Shoulders pattern?
Step 1: Look for an uptrend – The head and shoulders pattern forms after a prolonged uptrend. So, the first step is to identify a clear upward movement in the price. Step 2: Spot the left shoulder – The left shoulder is formed when the price reaches a high point and then retraces to form a temporary low.
