Business

How do you trade using the shoulders and heads pattern?

The shoulders and heads pattern is one of the most reliable and easy-to-use technical patterns in forex trading. Traders can use it to trade various currency pairs, which can be applied to any time frame from the 1-minute to the monthly chart.

The pattern comprises two “shoulders,” formed by price peaks, and a “head,” formed by a higher price peak between the two shoulders. The pattern is completed when the price falls back down to the level of the first shoulder.

Three ways to trade the shoulders and heads pattern

There are three main ways to trade the shoulders and head pattern. Your stop loss and target profit levels will differ depending on which way you trade the pattern.

Enter a long position at the break of the neckline

If you enter a long position at the neckline break, you should place your stop loss below the head’s low. If the price falls below the neckline, it will likely continue falling to test support at the level of the first shoulder. Your target profit level should equal the distance between the head and shoulders.

Enter a short position at the break of the neckline

If you enter a short position at the neckline break, you should place your stop loss above the head’s high. If the price rises above the neckline, it will likely continue rising to test resistance at the level of the second shoulder. Your target profit level should equal the distance between the head and shoulders.

Enter a long or short position at the retest of the neckline

If you enter a long or short position at the retest of the neckline, you can place your stop loss below or above the candlestick that formed at the neckline, depending on whether you’re going long or short. For a long position, your target profit level should be the same as if you were entering at the break of the neckline. For a short position, your target profit level should be twice the distance between the head and shoulders.

What are the risks of using the shoulders and head pattern?

There are a few risks associated with trading the shoulders and heads pattern:

  • False breaks of the neckline can occur, which can lead to losing trades.
  • The pattern may only sometimes be perfectly formed, leading to losing trades.
  • The pattern can take a long time to play out, leading to missed opportunities or losses if the price reverses before reaching your target profit level.

Despite these risks, the shoulders and heads pattern is still one of the most reliable technical patterns in forex trading. If you use it correctly, the shoulders and head pattern can help you make consistent profits in your trading.

What are the benefits?

Despite the risks, there are several benefits to using the shoulders and head pattern:

  • It is a very reliable pattern with a high success rate.
  • It is easy to identify and trade.
  • Traders can apply it to any time frame and currency pair.

Other trading techniques used by UK traders

There are several other technical patterns that UK traders commonly use. Some of these include the head and shoulders pattern, the double top and bottom pattern, the triple top and bottom pattern, and the cup and handle pattern. Traders can apply these patterns to any time frame and currency pair.

When trading the forex market, it is essential to use various techniques to make informed decisions. While the shoulders and head pattern is one of the more reliable patterns, it is essential to supplement it with other techniques to increase your chances for success.

The bottom line

The shoulders and head pattern is a very reliable technical method used to trade forex online and can be applied to any time frame or currency pair. While some risks are associated with using this pattern, the potential benefits outweigh the risks. If you use this pattern correctly, it can help you to consistently do well in your trading.

Leave a Reply

Back to top button