A Head and Shoulders Top is a bearish pattern signal. Head and shoulders pattern is a popular pattern among traders because it is one of most reliable of all formation. It can be easily to recognize. But traders often make mistakes of seeing this formation. The 1st formation (left shoulder) occurs as the price hits a high and then falls back. The 2nd formation (the head) occurs when the price hits high which higher than the 1st peak and then falls back again. The 3rd formation (right shoulder) occur when price rises again, but doesn’t hit the head, and then falls back. Af ter price shape a head, the confirmation, it will become head and shoulders top is the price create the same lower with the last bottom, we call it neckline. The neckline can be horizontal or it can slope up or down.
How to trade this pattern?
Go short when the currency price CLOSES below the neckline and put a stop-loss above the last peak (right shoulder).
Use a risk reward ratio. Better to calculate your profit target (if your risk is 50 points, your target should be at least 75 points).
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