You may encounter some potential problems with trading a head and shoulders pattern: You have to find patterns and watch them develop but you shouldn't trade this strategy until the pattern is completed. This could mean a long period of waiting. It won't work all the time. The stop levels will sometimes be hit.
How to find a head and Shoulders pattern on trading charts?
There are key features you need to look out for when searching for a head and shoulders pattern on trading charts. First, the pattern normally comes after a bullish uptrend at a period when the buying pressure is losing momentum. Then, a left shoulder is formed followed by a middle peak higher than the first top.
What is the head and Shoulders pattern?
The Head and Shoulders chart pattern is a price reversal pattern that helps traders identify when a reversal may be underway after a trend has exhausted itself. This reversal signals the end of an uptrend.
