How to Plot Head & Shoulders Pattern on TradingView

8 Jul

Welcome back, Traders!

We’re excited to have you here on TradingView where we share valuable trading insights and educational posts to help you succeed in the markets. Today, we’re diving into one of the most reliable chart patterns in technical analysis: the Head and Shoulders pattern. Understanding and identifying this pattern can significantly improve your trading strategy, whether you’re dealing with forex, stocks, or commodities.

What is the Head and Shoulders Pattern?

The Head and Shoulders pattern is a bearish reversal pattern that indicates a potential end to an uptrend and the beginning of a downtrend. It consists of three peaks:

Left Shoulder: The first peak followed by a decline.
Head: The highest peak followed by a decline.
Right Shoulder: A peak similar in height to the left shoulder, followed by a decline.
The neckline is the support line that connects the lows after the left shoulder and the head.

How to Trade the Head and Shoulders Pattern:

Identify the Pattern: Look for the three distinct peaks with the head being the highest.
Draw the Neckline: Connect the lows after the left shoulder and the head to form the neckline.
Entry Point: Enter a short position when the price breaks below the neckline.
Target: Measure the distance from the head to the neckline and subtract this distance from the breakout point to set your target.
Stop Loss: Place a stop loss above the right shoulder to manage your risk.

Inverse Head and Shoulders Pattern

Conversely, the Inverse Head and Shoulders is a bullish reversal pattern signaling the end of a downtrend and the start of an uptrend. It consists of three troughs:

Left Shoulder: The first trough followed by a rise.
Head: The lowest trough followed by a rise.
Right Shoulder: A trough similar in depth to the left shoulder, followed by a rise.
The neckline is the resistance line connecting the highs after the left shoulder and the head.

How to Trade the Inverse Head and Shoulders Pattern:

Identify the Pattern: Look for the three distinct troughs with the head being the lowest.
Draw the Neckline: Connect the highs after the left shoulder and the head to form the neckline.
Entry Point: Enter a long position when the price breaks above the neckline.
Target: Measure the distance from the head to the neckline and add this distance to the breakout point to set your target.
Stop Loss: Place a stop loss below the right shoulder to manage your risk.

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Stay tuned as we continue to share insights that will help you on your trading journey. Happy trading! - BK Trading Academy