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Head & Shoulders Explained
The Head & Shoulders Pattern & Inverse Head & Shoulders Patterns are quite common on Bitcoin and have had great results on the higher timeframe charts.
Here are the main characteristics:
• VOLUME MIMICS PATTERN
• 3 PEAKS, LEFT & RIGHT SIMILAR HEIGHT
• TRIANGULAR IN APPEARANCE
• FOUND AFTER UPTREND
• HIGH SUCCESS RATE
• CAN BE SLANTED
Price forms 3 distinct peaks after a strong uptrend, the left and right peak should have a similar height (shoulders), the middle peak (head) has to be the highest or this can not be a HS pattern . They should seem triangular in appearance but as long as it fits the main characteristics can still be a valid pattern.
The right shoulder should form a lower high which is a early sign of trend change, this is entry A, with entry B being the bearish retest of of the “neckline” (marked on chart #2). The idea is to gain an early entry on the pattern at point A to maximise profits and reduce risk. Once price moves above the middle "peak" it is likely that the pattern is not valid anymore so this allows us to get a tight stop loss upon entry. We measure the height of the pattern and add it to the breakout level for a maximum possible price target.
Volume should also paint the same pattern with the 3 peaks, strong volume on breakout increases success rate.
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What is General Pattern Failure?
General Pattern Failure occurs when a chart pattern breaks out, fails to hit target, quickly reverses then rejects off that same breakout level back inside the pattern continuing in the opposite direction of the breakout.
Pictured above in the original post on the left (its quite small but zoomed out to get the bigger picture) is a normal breakout on a Head And Shoulders Pattern. Note how it matches the first example (top left, "Normal Breakout").
General pattern failure can also be considered a Liquidity Grab or can be referred to as a “Fake Out” also when it happens more rapidly after the original pattern breakout.
In this example (top right as the example, pointing to the live chart at bottom right) it has come back up to the Head & Shoulders pattern after a long extended period of time, this doesn't mean the failure still cannot occur.
Once price gets back inside the pattern chances of higher prices are more probable.
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Learning to trade patterns such as these can provide great opportunities if you understand price action and how to identify the key areas of the pattern that other traders and investors may be focusing on too, these areas become important psychological levels on the chart.
If you found the idea insightful please share, like or comment, Thank you!
The Head & Shoulders Pattern & Inverse Head & Shoulders Patterns are quite common on Bitcoin and have had great results on the higher timeframe charts.
Here are the main characteristics:
• VOLUME MIMICS PATTERN
• 3 PEAKS, LEFT & RIGHT SIMILAR HEIGHT
• TRIANGULAR IN APPEARANCE
• FOUND AFTER UPTREND
• HIGH SUCCESS RATE
• CAN BE SLANTED
Price forms 3 distinct peaks after a strong uptrend, the left and right peak should have a similar height (shoulders), the middle peak (head) has to be the highest or this can not be a HS pattern . They should seem triangular in appearance but as long as it fits the main characteristics can still be a valid pattern.
The right shoulder should form a lower high which is a early sign of trend change, this is entry A, with entry B being the bearish retest of of the “neckline” (marked on chart #2). The idea is to gain an early entry on the pattern at point A to maximise profits and reduce risk. Once price moves above the middle "peak" it is likely that the pattern is not valid anymore so this allows us to get a tight stop loss upon entry. We measure the height of the pattern and add it to the breakout level for a maximum possible price target.
Volume should also paint the same pattern with the 3 peaks, strong volume on breakout increases success rate.
-----------------------------------------------------------------
What is General Pattern Failure?
General Pattern Failure occurs when a chart pattern breaks out, fails to hit target, quickly reverses then rejects off that same breakout level back inside the pattern continuing in the opposite direction of the breakout.
Pictured above in the original post on the left (its quite small but zoomed out to get the bigger picture) is a normal breakout on a Head And Shoulders Pattern. Note how it matches the first example (top left, "Normal Breakout").
General pattern failure can also be considered a Liquidity Grab or can be referred to as a “Fake Out” also when it happens more rapidly after the original pattern breakout.
In this example (top right as the example, pointing to the live chart at bottom right) it has come back up to the Head & Shoulders pattern after a long extended period of time, this doesn't mean the failure still cannot occur.
Once price gets back inside the pattern chances of higher prices are more probable.
-----------------------------------------------------------------
Learning to trade patterns such as these can provide great opportunities if you understand price action and how to identify the key areas of the pattern that other traders and investors may be focusing on too, these areas become important psychological levels on the chart.
If you found the idea insightful please share, like or comment, Thank you!
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