Forex Reverse Head and Shoulders Pattern

Forex Reverse Head and Shoulders Pattern:

Forex reverse head and shoulders pattern is similar to the normal head and shoulders pattern but it forms in a down trend and in the format. This is a bullish pattern. This indicates a reversal after an down trend.

In the following picture a head and shoulders pattern is shown. The line drawn connecting the high points of the pattern is called neck line.

Forex reverse head and shoulders format

Trade entry:

when you see a reverse head and shoulders format, wait until the neck line is broken with a strong candlestick. A strong candlestick means a candlestick which has a large body compared to the tails. In the following picture the neck line is broken with a strong candlestick body and moreover the candlestick does not have long tails so it is a very good opportunity to enter a long trade.

Forex reverse head and shoulders pattern broken by strong candlestick body

If the neck line is broken by the tail of a candlestick and not by the body of the candlestick then do not enter the trade. Check the following picture. In the following picture the neck line is broken by the tail of the candlestick and not by the body of the candlestick and moreover the candlestick has long tail. So do no enter the trade.

Forex reverse head and shoulders pattern broken by candlestick tail

Stop loss and take profit:

Once the break out occurs enter a long trade. Measure the difference between top of head and neck line. Breakout should be same as the difference. Set stop loss below neckline. Set target(limit) for less than the difference between head and neckline.

Check the following picture. In the following picture the difference between the neck line and the bottom of the reverse head is 70 pips. So the break out is 70 pips. But once the break out occurs the candlestick penetrated upwards for around 15 pips. So the remaining profit potential is 55 pips. Since we have to use the profit target a little less than the actual, use it around 5 pips below the actual target. So the remaining profit target is 50 pips.

Take profit and stop loss