My personal approach of "Head and Shoulders" Pattern

[sebfr]

Hi,

"Head and Shoulders" Pattern is one of the most reliable pattern in Technical Analysis. I would like to show you how i use it to make good trades (always not every time !). I prefer Inverted Head and Shoulders (opposite of "head and shoulders")

First, some words about this Pattern : (incredible chart)

A head and shoulders pattern consists of a peak followed by a higher peak and then a lower peak with a break below the neckline. The neckline is drawn through the lowest points of the two intervening troughs and may slope upward or downward. A downward sloping neckline is more reliable as a signal.

With inverted head and shoulders the neckline is drawn through the highest points of the two intervening peaks. A downward sloping neckline signals continuing weakness and is less reliable as a reversal signal.

The extent of the breakout move can be estimated by measuring from the top of the middle trough up to the neckline. This target is then projected upwards from the point of breakout.

(Have a look on Figure 1)

Volume Confirmation
High volume on the first peak,
Moderate volume on the middle peak,
Low volume on the third peak, and
A sharp increase in volume on the break below the neckline.

Trading Signals
Go short at breakout below the neckline.
Place a stop-loss just above the last peak.

After the breakout, price often rallies back to the neckline which then acts as a resistance level. Go short on a reversal signal and place a stop-loss one tick above the resistance level. (Figure 2)

Never trust a head and shoulders pattern where the neckline is clearly ascending (the second trough being higher than the first). Also, the more level the neckline, the more reliable the pattern.

Personal approach :
I am searching IHAS ("Inverted head and shoulders) like SIRI :
An IHAS as 5 points like you see on chart of SIRI.

Some rules :
1. Point 3 < Others Points
2. Point 2 (first shoulder) > Point 4 (Second shoulder)
3. Lows of points 1 and 5 < Lows of points 2 and 4
4. RSI and MACD in point 1 > RSI and MACD in point 3
5. RSI and MACD in point 3 > RSI and MACD in point 5

Also, we can see on SIRI that we have 2 patterns :
Inverted head and shoulders and ascending triangle => power of this IHAS !!!

When we see an ascending triangle breakout in this figure with high volume -> we have a winner !!!
SIRI -> 2.6 in september 2004 up to 9 in december 2004 ! So, 346% in less than 4 months !

Good finds and Good trades !!

[sebfr]

Hi,

Have a look on IFLBE -> we are waiting for a breakout of triangle pattern between 0.20-0.25 with high volume...

[DannyOhad]

sebfr,

did you mean 0.20-0.25 or 0.020-0.025?

[sebfr]

Oupsss

I would like to say 0.020-0.025 !!

Thanks for your remark

[atl_trader]

Oupsss

I would like to say 0.020-0.025 !!

Thanks for your remark

Results anytime: http://www.trade-ideas.com/SingleAlertType/GHAS/Head_and_shoulders.html

Inverted too: http://www.trade-ideas.com/SingleAlertType/GHASI/Inverted_head_and_shoulders.html

[OneGreater]

Nice thread Sebfr and thanks for the links Atl_Trader!

[atl_trader]

Nice thread Sebfr and thanks for the links Atl_Trader!

Hey, it's a big enough market for all of us!

[sebfr]

Hi,

GVIS is a good recent example....Have a look !

[sebfr]

HTVL -> a good candidate

[sebfr]

EFSF -> an another candidate ?

[sebfr]

An another example : CNR...+266% in few months

[sebfr]

an another example : SGLS -> +300% and it is not finished !

[sebfr]

Hi,

have a look on BHIP...Possiblie Inverted head and shoulders...

Time : end of day
Buy : Between 10.5-11...
Target : 15-16

[sebfr]

have a look on CGHI...For long term...

[teopi]

Saludos desde España.

Head and Shoulders inverted:

HL, WEL