How the Head and Shoulders Pattern Alerts the End of a Trend

🔵 How the Head and Shoulders Pattern Alerts the End of a Trend

NIFTY formed a Head and shoulders pattern this summer.

This is one of the most important patterns when it happens after a long bull or bear trend because a trend change or at least a large neutral period is likely to happen.

The pattern is often poorly drawn, and investors make bad decisions due to a lack of knowledge about Head and Shoulders patterns.

At TopChartPatterns, we let an AI to find the patterns, so we just need to decide where and when to trade the pattern.



✅ When is a Head and Shoulders pattern confirmed?

A head and shoulders MUST never be traded before the support line (blue) is broken. If the line is not broken, there is NO head and shoulders unfolding.

Once the price breaks below the blue support line, a short trade with tight stop losses should be initiated.



💰 How to trade this chart pattern?

You should short the underlying as soon as the blue support line is broken, with a tight stop loss above the support line.

Translated to money:

1. Use tight stop loss around 1-2%
2. Use a take profits as large as the pattern, 6% in the NIFTY example.

The returns are 3 to4 times the risk, so enjoy the journey while risking such a small percentage.


🛡️ The risk management strategy

As we have done in so many previous ideas, remember you can split the position in 2.

• 50% of the position in a take profits as large as your stop loss (adapt SL and this 1st TP to local supports/resistance levels)
  
  
• 50% of the position to a price as large as the previous pattern or even around 1,5 times the pattern. (target 3 in the chart).
  

The second TP is less likely to happen, but as soon as the first one has been reached (extremely high probability), this becomes a risk-free trade.


✴️ BUT… Where can I profit from this pattern NOW?

There are head and shoulders patterns forming in:

EURJPY

MSFT