This pattern is formed with two peaks and a neckline.
This is a very easy pattern to identify, but a very reliable reversal pattern.
#Big magic book pdf free download how to
You can read more about how to find and trade the head and shoulders pattern here. The second peak is the head and the third peak is the right shoulder. The first peak is shoulder one or the ‘left shoulder’. The head and shoulders pattern is formed with three peaks and a neckline. When done correctly this pattern can be incredibly reliable.
Once you know how to identify it you will start to see it on all your charts and time frames and you will see how profitable it can be. The head and shoulders is quite possibly the most popular of all the chart patterns. This is far better than finding and trading 20 x different patterns, but being very average at them all. Often the best way is to find one or two classic chart patterns and then mastering them so you know them back to front. Just like the endless amount of indicators you can find and use, you don’t need to know them all to be profitable. There are endless amounts of chart patterns you can learn to use in your own trading. You can use this knowledge to your advantage by finding and then trading these patterns to make profitable trades. Traders do the same things over and over again in the markets which creates the same patterns. This is the same reason why the same patterns continue to form over and over again. Think about how traders get greedy when looking to make money or fearful when they start losing it. Given similar sorts of circumstances traders will tend to behave in the same ways over and over again. The reason they continue to form and continue to repeat is because each pattern is price showing you what traders are doing through the price action.
You can use chart patterns in different ways in your trading, but the most popular is to find and then make high probability trade entries.Ĭhart patterns repeat time and time again. There are many patterns you can use for short term trading and patterns that can also be used to make intraday or scalp trades. Just because they are formed with more sessions and candlesticks does not mean that you have to use them for longer forms of trading only. They will normally show you a bigger reversal that is being formed or a larger trend that is being shaped. For example, a candlestick pattern may be an inside bar or a dragonfly doji.Ĭhart patterns are not formed with just one or two candlesticks and are created over longer periods of time. Whilst many traders will be using Japanese candlesticks to find their trading patterns, there is a difference between a chart pattern and a candlestick pattern.Ī candlestick pattern is normally a one or two candlestick pattern only. Chart patterns are different to candlestick patterns.