Technical Analysis Charting Pattern " Head and Shoulder", "Inverted Head and Shoulder"

Charting Patterns:

• Head & Shoulder
• Inverted Head & Shoulder

Head & Shoulder 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 slop upward or downward. A downward sloping neckline is more reliable as a signal. The extent of the breakout move can be estimated by measuring from the top of the middle peak down to the neckline. This target is then projected downwards from the point of breakout.
Trading Signals:  Go short at breakout below 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 on tick above the resistance level.

With Inverted Head & Shoulders the neckline is drawn through the highest points of the two inverting peaks. A downward sloping neckline signals continuing weakness and is less reliable as a reversal signal. The extent of the breakout move trough up to the neckline. This target is then projected upwards from the point of breakout.
Trading Signals:  Go long at the breakout above trend line. place a stop-loss one tick below the last trough. There is frequently a correction back to the neckline, which then acts as a support level. Go long on a reversal signal and place a stop-loss one tick below the support level.

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