DXY
Indicates a possible reversal of the current downtrend into a new uptrend. The head and shoulder is popular pattern with investors
The initial sell-off into the pattern can be steep or gradual.
The first shoulder is formed where the price troughs and rallies back to a level of resistance – the neckline.
Once the shares reach the neckline, they then sell-off to post a lower trough, before rallying again back to the neckline.
The shares then sell-off once again from the neckline, this time reaching a higher trough than the previous neckline sell-off.
The pattern is only confirmed once the rally from the second shoulder breaks above the neckline, after which the target objective is equal to the distance from the neckline to the trough of the ‘head’.
Remember! Nobody’s perfect
Whilst trade objectives are calculated by assuming and projecting the height of the head and shoulders pattern, note that they don’t always deliver a move equating to the full pattern height. Sometimes they undershoot. Sometimes they overshoot. And the pattern itself is not always perfectly neat. What is most important is that overall pattern respects the general steps mentioned above.
Individual technical indicators should never be relied upon in isolation for trading decisions, however strong the signal may be. Ultimately they are one of many indicators, which may, in the majority, be pointing the other way. Always use look at other indicators (moving averages, trendlines, price, price patterns, volume) to assist in the final trading decision. Lastly, the current trend of a share should always be respected – preempting a change can prove costly.