For traders who are well-versed in the dynamics of forex trading, a few trading patterns call the shots and attract the attention of traders frequently to ease calculation. In the field, Head And Shoulders Pattern has found great traction among the forex traders and without doubt, many traders find this pattern to be so impelling that they trade on such basis. However, just like any other concept, there are some key points to be kept in mind before one cruise alongside this pattern.
Firstly, one should realize the fact that cent percent guarantee is not given under any case or scenario. There are present numerous other patterns which draw popular investors’ interest since things appear pretty clear to everyone. For instance, in a market, if every investor is enthralled by tremendous opportunities where they could sell or buy easily and with considerable profit margins, it is but normal that herds of traders will line up in a large number.
Definition of Head And Shoulders Pattern:
We simply have to explore the pattern in great detail and in such a case, there are 3 key features: the left side shoulder, the head and then the shoulder on the right-hand side. This is a pattern where one gets to a height that is created, then a pullback or a return from that height which again forms a higher arch and then, a fall which makes a falling slope.
We can also call the right-hand shoulder that is the third part of the pattern, lower arch from the head.
Just get a look at the following image, signifying a 4-hour chart and this is just an example of a typical head and shoulder. The high tower marked as “1” is left shoulder. The second tower marked as “2” is called the head and finally, the third tower with label “3” is known as the right shoulder.
The image depicts an uptrend which not only defines the momentum but also pushes it out.
Completing this pattern, there is a red line below such high arches which is known as the “Neck Line” and from here, selling and buying starts at. As such, when traders get under this neckline level, they will have to sell out stuff to make a respectful exit from the market, providing an opportunity as sheer pressure is applied downtown.
Please take note of blue line which grows less and lower from the neckline and goes to a mark which was affected. This mark is what the target is. Now a pertinent question arises, how is a target determined? The concept is just a calculation from top of the tower (head) to the neckline. Or, we can also describe it as if the head and shoulders pattern is 300 pips high, collapsing below the neckline, there should be a move of 300 pips from that position. In such a scene, it is clear that breaking down has been pretty dominantly, followed by pattern recovery and finally, the target was reached. As a precaution, scores of traders rely upon the right side shoulder to cease their trading, from the fear of suffering losses.
All Head And Shoulders Patterns Are Not Discouraging In Nature:
There is a wide range of technical patterns which show an <<inverse>> pattern. Here, there are three towers, the left-hand shoulder which rises higher and registers a fall which makes ahead, then an upwards push which is followed by a higher low which brings the third shoulder into the picture. In simpler words, such as a head and shoulder pattern representing a zigzag or upside down pattern.
Through such a pattern, what is explained is that sellers lose the momentum but still, the market picks up the pace with full force. In the following infographic, we show how the inverse pattern implements in such a concept. Please note that the following scenario is just the same but simply in an invert or opposite circumstances.
Conclusion: Yet Another Tool In Your Tools’ Arsenal:
Such a pattern, as Head And Shoulders should be treated like yet another tool which can be used while trading and such is widely relied upon by traders as it reveals the promise of great returns against investment. But we need to realize that we need to allow a huge time window while such a pattern develops to our favour. This is mainly because it consumes a big volume and trading activities to take shape.
We should not rule out a simplistic style of trading as is the defining feature of any prolific trading framework if we want others to get involved with us in trading.
Not surprisingly, such trading patterns have proved to be pretty useful since the whole market gets a supreme momentum. And the DicnoFX provides you the platform to investing & trading. We are providing Trading & Investment Strategies for investors.