Where is the neckline of this Heads and Shoulders?
Updated
dailyfx.com/education/technical-analysis-chart-patterns/head-and-shoulders-pattern.html
I have been told by some people that we haven't broken the neckline yet of this H+S pattern. I says we have 3 weeks ago. It depends on how you draw the neckline.
If you draw the neckline based on the body of the candle, then you get the thick white line. If you draw it on the wicks you get the thick red line. Which is correct? Well check the link above, which teaches you how to draw the neckline. See the problem? Even in its own teaching material we have various combinations of wick vs body in the same diagram!!
I think in a volatile crypto like BTC, one should use the daily body. The daily body is very powerful in BTC, but the wick is very misleading in BTC - maybe it can be used, maybe it can't - it's a crapshoot, but the body is far more reliable. We know that if the daily closes above or below a trend line - that's good or bad - people rarely care about the wick. Therefore I think the daily close is the better and safer way to draw the neckline.
However, what matters most is market psychology - what does the market think the neckline is? That's more important because that's how the majority of traders will make their trades. Using the white line, I have seen the price bounce off it way too frequently for it to be insignificant. For example, 2 weekly candles ago, the weekly candle closed just above the white line, whereas last week's weekly candle started just below the white line and ended way below it - too 'coincidental' to be insignificant. I think the white line is the 'true' H+S neckline based on the behavior of the market so far.
(see here for reference on the weekly candle vs the white neckline:
)
However, there are some who still think the neckline is the red line. Right now on Bitfinex that is
29K ish, and on Coinbase it is 30.6k. If the daily candle closes at 29K, I think that is the signal to the whole market and the whole market will be in consensus that we are truly are in a H+S pattern down to the $17-20k region.
I have been told by some people that we haven't broken the neckline yet of this H+S pattern. I says we have 3 weeks ago. It depends on how you draw the neckline.
If you draw the neckline based on the body of the candle, then you get the thick white line. If you draw it on the wicks you get the thick red line. Which is correct? Well check the link above, which teaches you how to draw the neckline. See the problem? Even in its own teaching material we have various combinations of wick vs body in the same diagram!!
I think in a volatile crypto like BTC, one should use the daily body. The daily body is very powerful in BTC, but the wick is very misleading in BTC - maybe it can be used, maybe it can't - it's a crapshoot, but the body is far more reliable. We know that if the daily closes above or below a trend line - that's good or bad - people rarely care about the wick. Therefore I think the daily close is the better and safer way to draw the neckline.
However, what matters most is market psychology - what does the market think the neckline is? That's more important because that's how the majority of traders will make their trades. Using the white line, I have seen the price bounce off it way too frequently for it to be insignificant. For example, 2 weekly candles ago, the weekly candle closed just above the white line, whereas last week's weekly candle started just below the white line and ended way below it - too 'coincidental' to be insignificant. I think the white line is the 'true' H+S neckline based on the behavior of the market so far.
(see here for reference on the weekly candle vs the white neckline:
However, there are some who still think the neckline is the red line. Right now on Bitfinex that is
29K ish, and on Coinbase it is 30.6k. If the daily candle closes at 29K, I think that is the signal to the whole market and the whole market will be in consensus that we are truly are in a H+S pattern down to the $17-20k region.Note
Oh, I have to add that I am charting both Coinbase and Bitfinex, and another good reason why we shouldn't drawn the neckline based on wicks is that a neckline based on wicks looks wildly different between Coinbase and Bitfinex: Bitfinex allow options trading has longer wicks, but the body of the candle between the 2 markets is similar enough to be comparable.Right now, we on the cusp of breaking the neckline-based-on-wicks on Coinbase but we are quite a ways off breaking it on Bitfinex. That doesn't sound right, correct? Drawing a body-based-neckline makes the 2 markets much more comparable, and therefore I think the right thing to do.
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