How to Interpret Head Shoulders Chart Setup
Trade Head and Shoulders Setup
Head & Shoulders Setup is a reversal indices pattern which forms after an extended indices upwards trend.
Head and Shoulders Setup is made up of 3 consecutive stock price peaks, the left shoulder, the head and the right shoulder with two moderate stock price troughs between the two shoulders.
This Head and Shoulders Setup is considered to be complete once the price penetrates and moves below the neckline - the neckline is drawn by joining the two stock price troughs in between the two shoulders.
To open a sell indices trade after this reversal signal -traders will place their sell stop pending orders just below the neck-line.
Summary: How to Interpret Head Shoulders Chart Setup?
- Head Shoulders Chart Setup forms after an extended upwards trend move
- Head and Shoulders Pattern signals that there'll be a reversal in the upwards trend
- Head & Shoulders Setup resembles and looks like a head with shoulders thus its name - head and shoulders indices pattern.
- To draw the neck-line we use chart point 1 and chart point 2 as is shown & displayed on the head and shoulders stock chart pattern example explained and illustrated and shown below. We also extend this neck-line in both directions.
- traders will sell when the price breaks out below the neck-line: as described on the head and shoulders stock chart pattern examples expounded and illustrated below.
How to Interpret Head Shoulders Chart Setup?
The head and shoulders stock chart pattern also can form on a sloping neckline - like on the head and shoulders stock chart pattern examples expounded and illustrated and shown below:
How to Interpret Head Shoulders Chart Setup?
Head & Shoulders Setup on a Trade Chart
How to Trade Head Shoulders Chart Setup?
Head and Shoulders Setup also can be formed on a sloping neckline - like on the head and shoulders stock chart pattern example above - the neckline does not necessarily have to be horizontal.
How to Trade Head & Shoulders Setup
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