Reverse Head and Shoulders in Gold - Profit from it | Sunshine Profits
Profit thanks to the Reverse Head and Shoulders Formation in gold. Get to know the key details and intricacies. Reverse Head and Shoulder is one of the very profitable bearish reversal chart the reward will be many times this which increases the risk to reward ratio. Head & Shoulders are reversal patterns (like double/triple tops/bottoms and wedges) that form at the top or bottom of a trend with the bottoms being Bullish and.
As its name implies, the Head and Shoulders reversal pattern is made up of a left shoulder, a head, a right shoulder, and a neckline. Other parts playing a role in the pattern are volumethe breakout, price target and support turned resistance.
We will look at each part individually, and then put them together with some examples. It is important to establish the existence of a prior uptrend for this to be a reversal pattern. Without a prior uptrend to reverse, there cannot be a Head and Shoulders reversal pattern or any reversal pattern for that matter. While in an uptrend, the left shoulder forms a peak that marks the high point of the current trend.
After making this peak, a decline ensues to complete the formation of the shoulder 1. The low of the decline usually remains above the trend line, keeping the uptrend intact. From the low of the left shoulder, an advance begins that exceeds the previous high and marks the top of the head. After peaking, the low of the subsequent decline marks the second point of the neckline 2. The low of the decline usually breaks the uptrend line, putting the uptrend in jeopardy.
Chart Examples of Inverted Head and Shoulders Patterns
The advance from the low of the head forms the right shoulder. This peak is lower than the head a lower high and usually in line with the high of the left shoulder.
While symmetry is preferred, sometimes the shoulders can be out of whack. The decline from the peak of the right shoulder should break the neckline. The neckline forms by connecting low points 1 and 2. Low point 1 marks the end of the left shoulder and the beginning of the head.
Precious metals investment terms A to Z
Low point 2 marks the end of the head and the beginning of the right shoulder. Depending on the relationship between the two low points, the neckline can slope up, slope down or be horizontal.
The slope of the neckline will affect the pattern's degree of bearishness—a downward slope is more bearish than an upward slope. Sometimes more than one low point can be used to form the neckline.
As the Head and Shoulders pattern unfolds, volume plays an important role in confirmation. Ideally, but not always, volume during the advance of the left shoulder should be higher than during the advance of the head.
This decrease in volume and the new high of the head, together, serve as a warning sign. The next warning sign comes when volume increases on the decline from the peak of the head, then decreases during the advance of the right shoulder. Final confirmation comes when volume further increases during the decline of the right shoulder.
The head and shoulders pattern is not complete and the uptrend is not reversed until neckline support is broken. Gold and the Reverse Head and Shoulders Pattern The reverse head and shoulders formation is characterized by 2 similar lows called shoulders and one higher low called head.
Neckline is determined by the tops between shoulders and head. Price can go over neckline, but when the price will come back to the neckline it will reflect of it.
Bellow you can find a picture presenting this pattern. This pattern works especially when the neckline is crossed after the second shoulder. There are 4 steps in this formation.
When they are seen, the pattern signals a reversal in trend. The first step is forming the left shoulder. This occurs when the price of the asset reaches a new bottom and retraces to a new top mid December. The second step is forming the head. This happens when a new low is established lower than the previous one in the left shoulder and price comes back to near the level in the left shoulder top early February. The third step is forming the right shoulder.
Another new low is formed, but it is higher than the previous one in the head and somewhere near the level of the bottom formed in the left shoulder mid March. The fourth step completes the whole pattern. Price rises above the neckline, which then becomes a support line established by the two tops between the head and shoulders. After completing this formation there is a high probability that price will continue rising even if it falls momentarily as in the last days of March. After a short period of decline, it will bounce off the neckline and start to rise again.
This move is a test for our formation and our new support level the neckline. However, it is essential to wait until this test is completed and to not take a position too quickly because the main move will occur after this test.
But significant changes lows, peaks or breaking through the neckline should be accompanied by high volume. Notice the volume action when price broke the neckline. To see this more clearly, look at the chart below.
Notice that the head and right shoulder were established with higher volume. This is a measure of where the price is considered to be headed, based on a confirmed or verified pattern. Since we already know price direction from the confirmed patternnow we can forecast a minimum value for how large that move will be. Here's the simplified method.