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Inverted Head and Shoulders Patterns

Inverted Head and Shoulders on Bitcoin

Inverted Head and Shoulders on Bitcoin

Inverted Head and Shoulders on Bitcoin is an already known pattern. As you might expect I also traded it but I made a foolish mistake. Let’s see how it worked.

The premise

As Bitcoin is the most known and traded cryptocurrency a lot of traders saw the inverted head and shoulders pattern appeared on BTCUSD, Daily chart. For those of you who don’t know, BTCUSD is the name of the pair formed of BTC (short for Bitcoin) and USD (United States Dollar). So, even if it doesn’t look like one, the BTCUSD is a currency pair.

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Inverted head and shoulders on Bitcoin

Inverted head and shoulders with diagonal neckline?

Indeed, this kind of pattern is a variation of a classic inverted head and shoulders. Unlike it’s classic brother, the classic inverted SHS pattern, the inverted head and shoulders with diagonal neckline have a… Guess what? You’re right. A diagonal neckline. You can find more about this variation in this article: Inverted Head and Shoulders on #MMM.

How did I traded it?

Being a classical chartist I traded this pattern in an old fashioned way. But, I made one of my foolish mistakes ever. As you can see in the chart, there was a strong breakout candle. After that, we had a pinbar. And, after the pinbar a wide bear candle. Basically, a classical break, retest, continuation scenario. So, how my trade worked? I placed my pending order with a 0,5% risk of my equity with a risk reward ration of 1:4. That means I risked 0,5% of my equity for a potential win of 2%.

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Inverted head and shoulders on Bitcoin

The outcome of the Inverted Head and Shoulders on Bitcoin

In my own defence I must say that I was coming after a 19% drawdown period (from peak to valley). My drawdown lasted almost sixth months. But, this shouldn’t be an excuse, but hey, I’m human too. So what have I done? In the second day after the breakout the trade reached almost +1,5% in my favour. But, there was no reason for me to touch that trade. Everything went just fine untill then. So, I decided to let the market do its thing. The next day, surprise. The price started to go back to retest the neckline. So, guess what the chicken inside me decided to do? You’re right. I decided to close the trade at +0,5%. I was simply too scared to take another loss. Especially after the trade went 75% in my favour.

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The outcome BTCUSD

What should i have done?

It’s quite simple. I should listen to my trading rules and allow the price to retest the broken neckline. But, this is the biggest problem with trading: emotions. The point is that it’s not that hard to learn some patterns and how to trade them. Not even when you try different money management and risk management techniques. The hardest thing in trading is to learn how to deal with your emotions.

The conclusion

A solution for this problem is to check the trades from daily charts only once per day, at the end of the day. That’s also the moment when a trader should make the decisions about trade management.

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