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Head & Shoulders Pattern - Advanced AnalysisIn this series about chart patterns we previously discussed narrowing wedges patterns, explaining their identification rules, the measure rule associated with them, and various observations. In this post, we will cover head & shoulders, inverse head & shoulders, and their complex counterpart. We will cover their identification rules, measure rules, and share some observations regarding these unique yet popular patterns. The topics covered in this post are mostly based on the work of Bulkowski on chart patterns (1). 1. Head And Shoulders The head and shoulder pattern also referred to as Head-and-Shoulders Tops by Bulkowski, is a bearish reversal structure commonly found in uptrends, characterized by a series of three maxima with the center maxima higher than the other two. The first maxima is denoted as "Left Shoulder", the second maxima (the highest one in the formation) is denoted as "Head", and the third maxima is denoted as "Right Shoulder". The volume on a head and shoulders formation should be decreasing over time. Bulkwoski points out that symmetry can play an important role in the validity of an H&S pattern. 1: H&S = Left Shoulder < Head > Right Shoulder 2: Left Shoulder ≈ Right Shoulder The first and second maxima are followed by two minima, the line connecting these two-point form the "neckline". Price breaking the neckline downward is a bearish signal (note that a low volume breakout is not indicative of a potential failure). Ongoing H&S on PGAL daily, waiting for the price to reach the neckline. 2. Inverted Head And Shoulders The inverted head and shoulder pattern also referred to as Head-and-Shoulders Bottoms by Bulkowski, is a bullish reversal structure commonly found in downtrends, characterized by a series of three minima with the centre minima lower than the previous two. The first minima is denoted as "Left Shoulder", the second minima (the lowest one in the formation) is denoted as "Head", and the third minima is denoted as "Right Shoulder". Like with a regular H&S, the volume should be decreasing over time. We can see it's simply a regular H&S pattern, but inverted. 1: Inverted H&S = Left Shoulder > Head < Right Shoulder 2: Left Shoulder ≈ Right Shoulder The first and second minima are followed by two maxima, the line connecting these two-point form the "neckline". Price breaking the neckline upward is a bullish signal (note that a low volume breakout is not indicative of a potential failure). Inverted H&S on MTSI daily. 3. Complex Variations Bulkowski presents two complex variations to the H&S and inverted H&S patterns. These complex variations are similar to the regular ones but have the particularity of having multiple shoulders on each side or multiple heads. Inverted complex H&S on ARKW daily. 4. Measure Rule The measure rule for head and shoulders formations allows the determination for the level of taking profits and stop losses after a breakout of the neckline. In the case of a regular H&S, the take profit should be set at the breakout point minus the height between the formation head value and the neckline value where the head is located. The same applies to inverted H&S, the take profit should be set at the breakout point plus the height between the formation neckline value where the head is located and the formation head value. In the case of a complex dual-head H&S formation, the head value that should be selected is the lowest one. 5. Observations Head and shoulders formations can sometimes be encountered within diamonds formations. Osler identifies head-and-shoulders trading as a type of noise trading and points out that the immediate price effect of head-and-shoulders trades disappears slowly but completely over the subsequent two weeks (2). Caginalp and Balevonich found that head and shoulders patterns can be obtained as a consequence of a single group of investors with identical motivations and assessment of the value of the financial instrument (3). 7. References (1) Bulkowski, T. N. (2021). Encyclopedia of chart patterns. John Wiley & Sons. (2) Osler, C. (1998). Identifying Noise Traders: The Head-and-Shoulders Pattern in U.S. Equities. Federal Reserve Bank of New York Research Paper Series. (3) Caginalp, G., & Balevonich, D. (2003). A Theoretical Foundation for Technical Analysis. Capital Markets: Market Microstructure eJournal.
COINBASE:BTCUSDEducation
by LuxAlgo
12
HEAD & SHOULDERS PATTERN FOR BITCOIN!!In this chart There is a Head and Shoulders pattern that looks to be invalidated but could still find its way back down. With volume in Meme coins like Shiba Inu recently, it makes me think a correction is coming. However this is not to tell you to sell, it is just to tell you where you should possibly to your holdings/positions if the opportunity arises. Anticipating a retest of the 56k area possibly all the way down to 52k for a buy. Either way I'm not going to be selling my current holdings. Hope this helps with perspective.
BITSTAMP:BTCUSD
by RektMyMom
Don't be fooled, we won't see that big of a correction short trmToo many people see the cup and handle, if you're waiting to enter for a dip, I think you will be frontrun . Don't try waiting to buy in the 5,400's too many people will open leveraged longs. Really? Do you think you're the only one with that idea? Everyone wants to long there for the f***cking mega-giga-pump cup and handle that is clear as day to all of these noob traders who have read one TA book in their life. DONT GET FRONTRUN.
BITSTAMP:ETHUSDLong
by UltimateKnowledge
1
Clear H & S - it's over for now.SOL has a clear head & shoulders. End of the of our glorious up, up, up. Sol may see a slight rise before continuing to wiggle down - first to around $130 area and then down to the $115 > $117 area. Then down to $110. I suspect it will end up at around $75 - All of this DEPENDS upon the movment of BTC & ETH. The down trend should provide some good scalping - provided the fall is not to rough and choppy. NOTE: ETH & BTC dictate for most coins how they will move - keeep and eye on these coins. If BTC does fall big style (Blood On The Streets) it is possible that SOL could go to $40 or even down to $24. SO, unless you wish to HODL and then buy more on DCA, you might want to consider TAKING PROFITS or selling out and buying back in at a better price (it's what I will do). Not Financial advice - DYOR. Happy Hunting.
by esorlegin
5
Natural Gas Big Inverse Head and Shoulders Pattern playing outI have spotted this pattern a bit too late, but now we are few weeks after its activation and target is only half way through. I am expecting this to hit the target before we start thinking about possible top. What do you think? It looks like a textbook execution, I would be surprised if we fail. Now we also have broken the trendline of the previous two highs and we have printed 2 very bullish looking candles on the weekly to support this going further up, maybe even without many corrections. On the shorter timeframe I see a cup and handle to support the move higher as well. I am very bullish on this based on these factors. Please share your view.
NLong
by TheChartWhisperer
6