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Head and Shoulders Patterns

Head and Shoulders Pattern on GBPCHF

Head and Shoulders Pattern on GBPCHF

Head and Shoulders Pattern on GBPCHF is one of the most meaningful patterns that I see at this time. It has everything it need to be a tradable pattern. Let’s take a closer look.

The premise

Let’s take a look at the GBPCHF daily chart and think a bit about it. The pattern is located in the former resistance. Therefore, a great place for a reversal pattern. Also, the head and shoulders pattern is placed at the end of a strong pullback.

head-and-shoulders-on-gbpchf
Head and shoulders on GBPCHF

How did I trade this head and shoulders pattern on GBPCHF

I placed a sell stop order slightly below the January 10th 2020 daily candle. The next day, the market opened with a gap into the downside. Therefore everything is set up great for a big drop. Also, you can call the gap the breakaway gap. Finally, the breakout daily candle is a strong one.

How did that work?

The next days everything was just as expected to be. The price dropped day after day making in this process a new low each day. Though, at some point, an inevitable retest of the neckline occurred. Seems like everything is normal, so far. Even the retest candle touched the neckline and closed under its opening price. Therefore everything continues to be as expected.

the-outcome-of-the-head-and-shoulders-on-gbpchf-part-one
The outcome of the head and shoulders on GBPCHF part one

How did the GBPCHF trade end?

Now, after all the good signs, let’s see how this trade ended up. The next day after the retest, the price remained in a narrow range. Therefore, nothing changed in this trade. Certainly, it’s totally normal to see this kind of candle before a continuation. Of course, it’s desirable to see a new low in place. But, sometimes, the market take it’s time to do its thing. The interesting thing is coming. The second day after the retest the bulls stepped in and bought the support in a very strong manner. They’ve been encouraged by the lack of continuation of the previous day candle.

the-outcome-of-the-head-and-shoulders-on-gbpchf-part-two
The outcome of the head and shoulders on GBPCHF part two

The conclusion of the Head and Shoulders Pattern on GBPCHF

The obvious conclusion is that no matter what a good looking is a pattern we always need to be aware that something wrong might happen. Therefore, in this case, the SHS pattern didn’t worked out. Even more, there is no continuation after the retest of the neckline. And, instead of continuation or reversal, the price evolved into a double bottom in support. The double bottom in support also failed. And I don’t recommend you to trade that type of double bottom. That’s because a market like that is telling you that it just entered into a ranging phase. And last but not least keep in mind the importance of the risk and money management.

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