A pattern is also a trend reversal formation.
It is formed by a Valley (left shoulder), followed by a Lower Valley (head), and then another Higher Valley (right shoulder).
A “Neckline” is drawn by connecting the highest points of the two Peaks. Neckline resistance does not need to be strictly horizontal.
. This illustrates that the downward trend is coming to an end.
. When a formation is seen in an downtrend, it signifies a major reversal.
. The pattern is confirmed once the price breaches the neckline resistance.
In this example, we can easily see the pattern.
How to Trade the Pattern:
we put an entry order below the neckline.
We can also calculate a target by measuring the high point of the head to the neckline.
This distance is approximately how far the price will move after it breaks the neckline.
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