In addition to technical indicators, chart form can also be used to verify market changes, because chart form is the most direct reflection of market psychological changes.
It can not only predict the direction of the market, but also provide obvious entry and stop loss, profit positions.
Common chart patterns fall into two categories: persistence patterns and reversal patterns.
Reverse PATTERN, as the name implies, is the future market trend will reverse, including head and shoulder top/head and shoulder bottom, double top/double bottom, triple top/triple bottom, V shape, circular arc, etc.
A persistent pattern is also known as a relay pattern, where a market trend continues after a period of rest.
There are mainly triangles, flags and wedges, rectangles, diamonds and so on.
The most important inverted shape is the head and shoulder shape, including the top and bottom of the head and shoulder.
1. Know the top and bottom of the head and shoulders.
The head and shoulder shape consists of left shoulder, right shoulder and neck line.
The neck line is the high or low line between the shoulders and the head.
The shoulder position is basically flat, located about 1/2 to 2/3 of the height from the neck line to the head.
While the trend behind the right shoulder tends to have a brief “twitch”, it cannot change the trend.
Before the head and shoulder top forms, the market is in an upward trend, the left shoulder reverses for the first time and then rebounds to the head;
After continuing to descend, there is still rebound, forming the right shoulder.
After the right shoulder pullback, drop below the neck line.
The left shoulder and the right shoulder are small peaks.
The top of the head and shoulder and the bottom of the head and shoulder are mirror symmetrical.
The market is in a down trend until the head and shoulders bottom forms.
Inverted at the left shoulder, the upward force is very small, and soon the price falls to the head;
The head continues to rebound and fails to pass the neck line, falling to form the right shoulder, which rebounds and breaks the neck line.
The left shoulder and the right shoulder are both troughs.
2. How to Trade with the head and shoulder shape When you identify the head and shoulder shape in the K-chart, you can enter the right shoulder just as it forms a light position, buy at the bottom low and sell at the top.
Since there is no way to verify that the head and shoulder shape is valid at this time, multiple right shoulders may appear behind the right shoulder, so for short clearance operations, it is best to wait until the head and shoulder shape is validated before entering the site.
The market trend beyond the neck line proves that the head and shoulder shape works and can be added.
Sell at the top of the head and buy at the bottom.
After a general trend breaks the neck line, a short-term “twitch” occurs. “This phenomenon, so in the short term, you’ll see accounts close to a loss, but don’t worry, the trend will soon resume.
3. Variation of head and shoulder shape The head and shoulder shape discussed above is idealized.
In the real market, there are two common variants – neck skew and multiple shoulder problems.
The neck line tilt indicates that the left shoulder and the right shoulder are not at the same level, which can reflect the intensity of market price changes.
At the head and shoulder top, if the neck line is tilted upward, it indicates that the market decline is less intense and therefore less likely that the final price will fall below the neck line, and the head and shoulder top may fail.
On the contrary, when the neck line is tilted downward, it indicates that the market decline intensity increases and the effective probability of head and shoulder top increases.
In the head and shoulders, if the neck line is tilted downward, it means that the intensity of price increase is reduced, the possibility of price breaking the neck line is reduced, and the head and shoulders may fail.
When the neck line is tilted upwards, it means that the price moves strongly and the probability of price breaking the neck line increases.
Taken together, this means that the neck line is downward sloping, which means that the market is weak, and for a downtrend, this is favorable and hinders the uptrend.
When the neck line is tilted upward, it indicates that the market is in good shape, which favors the uptrend and impedes the downtrend.
Multiple shoulder problems In the market, we often encounter multiple left or right shoulders, with different numbers of left and right shoulders.
Multi-shoulder problems arise because the market trend is not strong enough to break through at once, break the neck line, and cause multi-shoulder shocks.
A common condition is multiple right shoulders.
When we apply a chart form: first identify the basic form and know what the form represents;
Then the cervical cord is breached to verify the validity of the morphology.
It is generally believed that this wave trend can be sustained for a distance at least equal to the height from the neck line to the head.
The Fed may step on the accelerator as global central bank resolutions come thick and fast.
Please pay attention to the specific operation, the market is changing rapidly, investment needs to be cautious, the operation strategy is for reference only.
