In forex technical analysis, a Head and Shoulders trade setup is a technical reversal pattern that signals a move lower after the price has been bullish. Head and Shoulders chart pattern predicts a trend reversal from a bullish to bearish trend.
Head and Shoulders formation consists of a left shoulder, a head in the middle, and a right shoulder with a line drawn as the neckline. The left shoulder is formed at the end of a bullish move. After the peak of the left shoulder is formed, price reacts and slides lower. The price rallies up again to form the head which is higher than the left shoulder. The price then drops again before rallying up to form the right shoulder. The right shoulder can be at the same level as the left shoulder or lower than the left shoulder. The neckline connects the bottoms of the left shoulder, the head and the right shoulder in a Head and Shoulders Trade Setup. The break of the neckline confirms the Head and Shoulders reversal pattern and signals a move lower.
Head and Shoulders trade setup is a very profitable reversal chart pattern to trade as it predicts trend reversal or beginning of a new bearish trend.
Today in this Episode, I will show you how to identify a head and shoulders trade setup, where to place your stop loss and how to exit the trade profitably.
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