Forex Videos

Head and Shoulders is a bearish reversal pattern which is formed after an uptrend and consists of a peak as a left shoulder, a higher peak as the head and a lower peak as the right shoulder. A neckline is being drawn connecting the 2 lows between the shoulders.
Lets look at the chart. In an uptrend the first peak forms the left shoulder and after a retracement price pushes higher and forms the head. The bull trend now gets exhausted and bears push the price downwards. Then seeing this is an opportunity to buy bulls jump back in. This fails to reach previous high and bears stay in control driving the price down. Its similar to a double top formation. The break of the neckline triggers the sell signal. This pattern is used with 3 different necklines. The first one has a rising slope. This one has the largest probability of failing the pattern because there are no actual reversal sign as the price is still trending upwards and all other times you are more likely to see trend continuation. Second is a horizontal neckline. With this pattern the support and resistance levels are very subjective and only horizontal neckline will appear on your chart the same as on any other trading charts. Third is the downward sloping neckline. This one uses the most reliable reversal signal as it has already managed to make lower low. The price target for this pattern is the height measured from the neckline to the top, measured down from the breakout point.