Secrets of the "Head & Shoulders" trend reversal pattern

Head and shoulders trend reversal pattern is devoted to a sufficiently large number of studies and publications. The authors compare it to Elliott wave structurewith the scheme of the process of accumulation and distribution, which characterizes the activities of major players in the market, and even develop reverse trading strategies based on the unviable figure of "Head and shoulders" under certain market conditions.

Missed aspects of the figure of technical analysis "Head and shoulders"

As a supporter of harmonic trading and preferring the analysis in its classical sense, I, in turn, would like to draw attention to two important aspects that should not be forgotten by traders who use The figure of technical analysis "Head and shoulders":

• First, it can be broken down into parts, each of which is an important and independent element that allows us to identify the preferences of participants in market battles.
• Second, using the principles of harmonic trading helps to identify important price levels to pay attention to.

If you decompose the model into its constituent parts, you can see that initially a pattern is formed, on the basis of which you can build trading strategy "Anti–Turtles". It includes the left shoulder and head of the graphic configuration under study.

A little later the formation of 1-2-3" modelwhich serves as the basis for the application of the principles of harmonious trading.

Head and shoulders" trend reversal pattern analysis by parts

On the hourly chart of silver futures, a successful test of the 127.2% area, which is the initial target in the The Perfect Butterfly pattern (correction at 78.6%), opened the way up. Thus levels 127.2% and 161.8% began to play a role of support.

Also worth mentioning is the consolidation formed in the area of 100-127.2%, a breakout of the upper boundary of which was a serious driver for the bulls.

Important levels, identified through the principles of harmonic trading, often become the basis of the process of accumulation in the scheme of action of major players in the market.

Part of the "Head and Shoulders" TA pattern formed on the 60-minute chart of oil futures was the Gartley horny pattern (correction on the level 61.8%). Its target at 78.6% later fulfilled the function of support. As a result, during the next few days there was a process of accumulation, the exit from which ended with an explosive movement of quotations.

Disadvantages of using the technical figure "Head and shoulders"

However, it is often not easy for prices to overcome the targets set by harmonic trading models.

On the daily chart of the currency pair USD / Loonie area 127.2%, identified with the harmonic pattern "Perfect butterfly", and still remains unconquered. The nearest support levels are at 0.9930 (100%) and 0.9870 (78.6%). If the market manages to successfully test them, it is quite possible to return to long-term downtrend. At the same time, the "Head & Shoulders" trend reversal pattern will not be able to be fully realized.

Thus, negative financial results associated with the use of the studied graphical configuration is not due to insufficient efficiency of the figure of technical analysis "Head and shoulders", but to ignoring the principles of harmonic tradeThe use of which allows the trader to get a correct idea of the nearest price levels.

Other articles about technical analysis figures

• The figure of continuation of the Baskerville Dog trend - unsuccessful Head and shoulders
• Cup with a handle - a profitable pattern of continuation of the uptrend
• The Diamond or Rhombus trend reversal pattern: a dangerous signal for the trader
• Triangle or Head & Shoulders? A little more about technical analysis patterns