Head and shoulders patterns are formations that indicate the reversal of a current trend, specifically a bullish to bearish reversal.
Inverse head and shoulders patterns indicate the opposite, a bearish to bullish reversal.
As aforementioned throughout the pattern series, you will also find the head and shoulders pattern everywhere if you become too attached to it.
Many inexperienced traders will be too hasty to assume that these patterns are certain to play out, and will often enter these ranges incorrectly.
In this tutorial our lead analysts will go through their bespoke criteria to confirm a head and shoulders formation, these include; volume and the potential incorporation of a flag within the pattern.
More importantly, you will learn where is the ideal place to enter in such a pattern, in accordance with confluence and risk management.
NOTE: On the BTC market especially, these patterns are ripe with fake-outs and stop hunts. Do not look to trade on this pattern alone, you will always be reminded that confluence is key.
Time Stamps
2:46 – OMG Previous COTW (DO NOT TRADE THIS)
15:32 – HEAD AND SHOULDERS
- It is a top reversal pattern
- The right and left shoulder can be different heights but the head should be the highest
- Bull volume should be highest on the left shoulder rise
- The rise to the head should have less bull volume
- Sell volume from the top of the head can be higher than on the rise to the head
- The bear flag should be on small bull volume and on the breakdown bear volume should be big
- Head and shoulders are only confirmed when you break the neckline (then you short)
- The break should be on very high bear volume (biggest of all)
- If the bear volume on break is not so high there will likely be a retest (not the end of the world)
- TARGET: measured move from head to neckline
28:33 – INVERSE HEAD AND SHOULDERS
- Volume is vital because it is a bottoming pattern after a big sell-off
- Entry is on the break of the neckline
- The break should be on very high bull volume (biggest of all)
- The retest may or may not come
- TARGET: measured move from head to neckline
34:55 – COMPLEX HEAD AND SHOULDERS
- There can be two shoulders on one or both sides, also two heads are possible
- TARGET: measured move from head to neckline
36:12 – THREE PEAKS PATTERN
- DON NOT confuse inverse head and shoulders with 3 peaks pattern
- It is not bottoming pattern as inverse head and shoulders
- You do not take target as in head and shoulders patterns
38:52 – REAL EXAMPLES
44:27 – ERD EXCHANGE LISTING SETUPS
- You never buy a new exchange listing coin until 55EMA crosses below 200EMA on 5min to 15min TF
- BUT do not forget about CONFLUENCE!!!
49:34 – BTC TA and Q&A
- TIP: After seeing a high volume selloff you HAVE TO get into short on retest