What is Head and Shoulders Chart Patterns in Forex?

How Do You Identify a Head and Shoulders Pattern in Forex?

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This Head and Shoulders trading patterns charts guide explains how to identify patterns - identifying patterns is the first step when it comes to learning how to trade with Head and Shoulders chart patterns in Forex.

Head and Shoulders forex price patterns commonly form on Forex charts and this pattern analysis guide explains how to trade & analyze forex charts using Head and Shoulders chart patterns.

Head & Shoulders Chart Pattern

Head & Shoulders Pattern is a reversal chart pattern that forms after an extended Forex uptrend. Head and Shoulders Chart Pattern is made up of 3 consecutive peaks, the left shoulder, the head and the right shoulder with two moderate troughs between the shoulders.

This Head and Shoulders Chart Pattern is considered complete once price penetrates below the neckline, which is plotted by joining the two troughs between the shoulders.

To go short, Forex traders place their sell stop orders just below the neck line.

Summary:

• This Head and Shoulders Pattern forms after an extended move upward
• This Head & Shoulders Chart Pattern formation indicates that there will be a reversal in the market
• This Head & Shoulders Pattern formation resembles head with shoulders thus its name.
• To plot the neck line we use chart point 1 and point 2 as shown below. We also extend this line in both directions.
• We sell when the price breaks below the neckline: see the chart below for explanation.

Head & Shoulders Pattern - What is Head and Shoulders Pattern in Forex?

Or the head & shoulders chart pattern can also form on a slanting neck line, like the example below:

Head & Shoulders Pattern - How Do You Identify a Head and Shoulders Pattern in Forex?

Example of Head and Shoulders Pattern on a Forex Currency Chart

Head & Shoulders Pattern - How Do You Identify a Head and Shoulders Pattern in Forex?

This Head and Shoulders Pattern can also be formed on a slanting neckline, like the one above, the neckline does not have to be necessarily horizontal.