A Technical Approach To Trend Analysis: Practical Trade Timing for Enhanced Profits

Head and Shoulders

The first signal is the popular head and shoulders, introduced as a bearish reversal in Chapter 5. All too often, however, this signal appears in an uncertain environment. For example, in a bullish primary trend, how do you identify a reversal attempt and legitimate head and shoulders pattern? Some price movements are not specific enough to conclusively call a swing trade and to identify whether or not the pattern has actually taken place.

In Figure 6.1, what appears to be a bullish rally moving against the prevailing trend failed and moved below the neckline, confirming that the brief rally had failed. Once price falls under the neckline, it does not rise above it for the following 18 months.

Figure 6.1 Head and shoulders ...