Here we have a tentative head and shoulder price pattern. Tentative for me is a pattern still in the making and not yet confirmed. However with every head and shoulder pattern comes a triangle pattern between the head and right shoulder. Head and Shoulder = Reversal Pattern, Triangle = Continuation or Reversal as a triangle shows us a indecision lower highs/ higher or equal lows. So how do I deal with this? I anticipate all possible moves the price can make, read the candlesticks around areas of importance, then trade the setup with the highest probability.
Comment:
Tight trading as the price trades within the pattern.
Comment:
False breakouts are a reality in trading and as traders we have to take measures to protect our open positions against them.
Now, you may be wondering… why go through all the trouble of figuring out if there is going to be a false breakout or not? Here’s why…
Because you have to:
#1: move stop loss to break-even if you see an indication that a false breakout might be happening,
#2: take partial profits off if you can and move stop loss to break-even for the rest of the remaining pips or,
#3: move stop loss tighter to lock in profit or,
#4: you do absolutely nothing! Just leave your stop loss (well calculated and affordable) where it was placed initially, without taking any partial profit etc… and just see what happens. Sometimes the market has a habit of shaking off the weak feet and then continue moving in the direction of the trade again and you can be rewarded nicely for holding on…
What if the signals turns out to be a temporary pullback? Well, that is excellent! Get in again (if you got stopped out).
Now, you may be wondering… why go through all the trouble of figuring out if there is going to be a false breakout or not? Here’s why…
Because you have to:
#1: move stop loss to break-even if you see an indication that a false breakout might be happening,
#2: take partial profits off if you can and move stop loss to break-even for the rest of the remaining pips or,
#3: move stop loss tighter to lock in profit or,
#4: you do absolutely nothing! Just leave your stop loss (well calculated and affordable) where it was placed initially, without taking any partial profit etc… and just see what happens. Sometimes the market has a habit of shaking off the weak feet and then continue moving in the direction of the trade again and you can be rewarded nicely for holding on…
What if the signals turns out to be a temporary pullback? Well, that is excellent! Get in again (if you got stopped out).
Comment:
Price was unable in the pattern to reach the neckline (showing bullishness), then the breakout higher with strong bullish momentum (look at the body of the breakout candlestick). After the breakout there was a weak bearish pullback, price was unable to reach breakout line. In this pullback the bullish reversal candlestick offered another Buy entry if you did not get in on the break of the triangle resistance line. As you can it was worth it to consider all possible moves the price can make, and to realize that Head & Shoulder pattern also forms a triangle pattern.