The Pattern
A head and shoulders top pattern
consists of three successive peaks: The
middle peak, or head, is the highest
and the two outside peaks, or shoulders,
are lower at roughly the same
level as each other. Connecting the reaction
lows of each peak forms a level
of support, also called the neckline.
In order for the head and shoulders
top pattern to be a reversal pattern,
there must be an existing upward
trend to reverse. Therefore, we must
fi rst look for an existing uptrend.
During the uptrend, the left shoulder
forms a peak, marking the high
point of the current trend. Following
the formation of this intermediate
high, the price declines to complete
the formation of the left shoulder.
Typically, the low of this decline remains
above the trendline, preserving
the uptrend for the time being.
The head forms when the price
reverses course and advances from
the low of the left shoulder, rising
above the high of the left shoulder.
Following this new intermediate high,
the price again declines to a level
generally equal with the low of the
left shoulder. This time, however,
the reaction low usually breaks the
uptrend, indicating that the uptrend
may be at risk.
Once again, the price reverses from
the low of the head, forming the right
shoulder. This intermediate high is
lower than the head and usually of
similar height as the left shoulder.
Following the formation of the right
shoulder, the price again falls. However,
the price does not fi nd support
and breaks below the neckline.
Neckline Break
The head and shoulders top pattern
is ultimately confi rmed once the price
breaks through the neckline, falling
below the support line formed by the
lows of the left shoulder and head.
A fi nal confi rmation of this violation
of support is a spike in volume,
ideally greater than that seen during
the formation of the pattern. If
the volume is lighter at the neckline
break than it has been during the
formation of the head and shoulders
top pattern, there is a greater chance
that the price will move back to and
above the neckline after the initial
break below it.
https://www.tradingview.com/chart/DGDBTC/gRdCM5vp-DigixDAO-Bitcoin-Head-and-Shoulders/
DISCLAIMER:
I am not a financial advisor nor am I giving financial advice.
I am sharing my biased opinion based on speculation.
You should not take my opinion as financial advice.
You should always do your research before making any investment.
You should also understand the risks of investing. This is all speculative based investing.
