1. Introduction

The shoulder-head-shoulder pattern is a popular one that most people know about. However, this is a model that many people do not correctly identify and do not recognize this pattern.

There are two types of shoulder-head-shoulder pattern: the regular shoulder-head-shoulder pattern and the inverse shoulder-head-shoulder pattern!

According to Samuraitrading Academy, the accuracy of the shoulder-head-shoulder pattern is 83.04% and the inverse shoulder-head-shoulder pattern is 83.44%.

2. Definition

The shoulder-head-shoulder pattern is a reversal pattern formed after an uptrend and its completion marks a trend reversal (In contrast to the inverse shoulder-head-shoulder pattern). The pattern contains three consecutive vertices with the middle vertex (head) being the highest and two outer vertices (shoulders) low and close to each other. The low response levels of each vertex can be connected to form a support or neckline (neck-line).

True to its name, the shoulder-head-shoulder pattern is made up of the left shoulder, head, right shoulder and neckline. Other parts that play a role in the pattern are volume, breakout, price target and support and resistance.

3. Properties

Previous trend: This is a trend reversal pattern, so if a previous trend is not formed, there would be no shoulder-head-shoulder pattern.

  • Left shoulder: During an uptrend, the left shoulder forms a peak that marks the climax of the current trend. After reaching this peak, a correction then occurs forming shoulder (1). The bottom of the correction will remain above the trend line> the uptrend remains intact.
  • Head: From the lows of the left shoulder, the next upside wave starts to exceed the previous peak and mark the top of the head. After reaching the top, the low of the next correction marks the second point of the neckline (2). The lowest zone of this correction often breaks the uptrend line, putting the uptrend in danger.
  • Right shoulder: A bounce-back that forms the right shoulder. This peak is lower (Lower high) and is usually new to the price of the left shoulder. Although the symmetrical shoulder-head-shoulder is the most standard one, sometimes the shoulder can be skewed. And from here, a decline from the top of the right shoulder breaks the neckline (Neck-line).
  • Neckline: Neckline is formed by connecting bottom points 1 and 2. Bottom point 1 marks the end of the left shoulder and the starting point of the Head. Bottom 2 marks the end of the Head and the beginning of the right shoulder. Depending on the relationship between these two points, the neckline can slope up, slope down, or horizontally. The slope of the neckline affects how much of the pattern is then reduced. Necklines with a downward slope tend to decrease more than an upward slope.
  • Volume: When the role shoulder-head-shoulder pattern appears, volume plays an important role in confirmation. Volume can be measured with indicators (OBV, Chaikin Money Flow) or simply with volume bars. Ideally, but not always, the mass of the left shoulder should be higher than the mass at the Head. This volume decline and New High's new highs act as a warning sign. The next warning sign appears when volume increases during a decline from the top of the head to the starting point of the right shoulder, then decrease again during the formation of the right shoulder. The final confirmation is when the weight is increased again while decreasing from the right shoulder.

  • Neckline Breakout: The shoulder-head-shoulder pattern does not form and the uptrend is not broken until the signal to break the neckline is a support line and accompanied by an increase in volume. amount.
  • Support turns into resistance: Once support is broken (Neckline), this support turns into resistance. Sometimes - not always, the price will return to test the recently broken support and provide a second chance to sell down.
  • Price target: After breaking the neckline support, we proceed to measure the distance from the neckline to the top of the head. And the price target will be equal to the above distance from the breakout point.

    4. Conclusion

    Dealing with the shoulder-head-shoulder pattern is fraught with problems.
    • First, you have to let it form before you confirm - avoid falling into confusion and underestimate the probabilities of price patterns.
    • Another thing that is very common is that when brothers enter a trade immediately after seeing a break out of the neckline but the price does not drop immediately but re-testing it again makes you confused. But discipline is the key to success.
    • We must always consider volume when trading with a shoulder-head-shoulder. Not using mass to validate a pattern is also an inherent mistake. Neckline breakout should happen with a surge in volume. You can use volume indicators like OBV or C.M.F...
    • When the right shoulder is lower than the left shoulder, take it as a potential signal for higher returns.
    • It is important to look for areas of significant support that could hinder momentum. Check if strong support exists between the head and shoulders pattern and the target. If not, then boldly hold the order to the price target
    The head and shoulders pattern is a very good pattern for trading. BUT it is most important to correctly identify it, use the instructions above as a guide!

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