Chart Pattern Analysis
■ (^) Short on the penetration of the price associated with the trough created by the
retest action, with a stop placed above the trough, neckline, right shoulder, or
head (see Point 4 in Figure 13.9)
Advantages of entering at the right shoulder of a head and shoulders top
formation:
■ (^) If the head and shoulders top formation completes, traders will already be in
profit at the moment the neckline was validly breached, which will help mini-
mize the risk of having the stoploss taken out.
■ (^) Shorting at the top of the right shoulder helps to reduce the effects of whip-
saws at the neckline break.
■ (^) There is no danger of a neckline retest endangering profits.
Disadvantages of entering at the right shoulder of a head and shoulders top
formation:
■ (^) It might not be a head and shoulders top formation after all, and price rallies
to form a double top instead, in the process taking out the stoploss.
■ (^) There is insufficient clarity and the formation may turn out to be a symmetrical
or ascending triangle, which suggests a continuation of the existing trend instead.
■ (^) A head and shoulders top formation could well turn out to be a consolidation
pattern and remain in a range.
In Figure 13.10, we observe an inverted head and shoulders formation meet-
ing its minimum one‐to‐one price objective on the 5‐min chart of the EURUSD.
figUre 13.10 The Minimum One‐to‐One Projected Price Target for an Inverted Head
and Shoulders Formation on the 5‐Min Chart of EURUSD.
Source: MetaTrader 4