Guidelines to trade by Head and Shoulders tops
A head-and-shoulders top is a three-peak reversal pattern with a centrally located head priced above two adjacent (shoulder) peaks. The pattern confirms as a valid best forex signals when price closes below the neckline or right armpit.
Upward price trend Look for an upward price trend leading to a head and shoulders top.
Three peaks The head-and-shoulders top is a three-peak pattern with the middle peak above the other two. The three peaks and two armpits (valleys between the peaks) should be well-defined minor highs and lows.
Symmetry The entire pattern has a symmetrical feel to it. The left and right shoulders should have similar distances from the head; both shoulders should top out near the same price, and be positioned on either side of the head
If a head-and-shoulders top does not resemble a human bust, then it is not a head-and-shoulders top.
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Chart patterns that form well into a price trend may signals the end of the trend.
Measure rule Compute the formation height by subtracting the value of the neckline from the highest high reached in the head, measured vertically. Subtract the result from the breakout price where prices pierce the up-sloping neckline, or, if the neckline slopes downward, closes below the right shoulder low. The result is the minimum target price to which prices descend. Alternatively, compute the formation height from the highest high to the daily low price in the higher of the two troughs. Subtract the result from the daily high price in the higher of the two troughs to get the target price. This method boosts the success rate and does not
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