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Saturday, March 27, 2010

HEAD AND SHOULDERS TOP PATTERN – Part 1: Formation

Head and Shoulders Top is a bearish reversal pattern that normally forms after an extended uptrend, which marks a shift in trend from bullish to bearish. This pattern is very popular because it is regarded as one of the most reliable of all patterns.

The Formation of Head & Shoulders Top Pattern




Head and Shoulders Top Pattern contains three consecutive, sharp peaks / tops, whereby the middle peak is the highest (Head) and the other two peaks (left & right peaks) are lower & roughly equal in size (Left & Right Shoulders).

This pattern forms when the price is in an existing uptrend. The price increases and hits a high then declines (forming the Left Shoulder). Afterwards, the price increases to an even higher high and then declines again (forming the Head). The Right Shoulder is formed when the price rises again but it does not hit the high of the Head. Instead, the price falls back after it has reached about the same price level as the Left Shoulder.
Although the Left & Right Shoulders do not necessarily need to be exactly the same, but it should appear roughly equal to one another.

The important part of this pattern is the Neckline. The Neckline is formed by drawing a line that connects two low points: (1) the low point in between the Left Shoulder & Head, and (2) the low point in between the Head & Right Shoulder.
This Neckline can be horizontal, sloping upwards or downwards.

The pattern is only completed and confirmed when the price decreases and closes below the Neckline, which serves as the key support level in this pattern.

Although Head & Shoulders Top is viewed as a common pattern and quite easy to identify, it’s actually not the case. Therefore, one should pay close attention & take proper steps to analyze the characteristics of Head & Shoulders Top in order to minimize / avoid making mistakes in spotting the pattern.
The characteristics of the pattern will be discussed in more detail in the next post.

Continue to Part 2: Important Characteristics of Head & Shoulders Top pattern.

To find out more about other Chart Patterns, please refer to:
Learning Charts Patterns

Related Topics:
* 10 Important Trading Lessons
* Learning Candlestick Charts
* Options Trading Basic – Part 1
* Options Trading Basic – Part 2
* Understanding Option Greek
* Understanding Implied Volatility (IV)
* Understanding Option’s Time Value

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Saturday, March 13, 2010

Trading Educational Video: “Day Trading Made Simple”

If you’re keen to learn some knowledge about Day Trading, here is the chance to learn from a renowned trading expert William Greenspan for FREE.

Watch this video, and grab this chance while it’s still free.

Friday, March 5, 2010

A Technical Video Analysis of the Equity Market

Although all the indices are undergoing some correction recently, the major trend for all the indices still remains positive. However, the trend may potentially reverse to negative in these markets should the key reversal price levels are broken.

This new short video will show you an analysis of where the key reversal area is in the S&P 500, the NASDAQ, and the Dow, if in fact the markets are ever going to reverse to the downside.