Inverted Head & Shoulders Forex Reversal Pattern Trading Strategy
The inverted Head and Shoulders pattern forex strategy is commonly used to trade reversals in a significant down trending currency market. It consists of a left shoulder, head and right shoulder. The neckline connects the left and right shoulder. The idea is to take a long position if the market closes above the neckline after the right shoulder has been formed with a stop loss a few pips below the right shoulder. Price target should be at least risk-to-reward ratio: 1.5 or better.
Example: Inverted Head and Shoulders pattern (EUR/USD D1)
The euro/dollar moved over 700 pips after breaking the neckline to the upside. Long entry @ 1.2528 with a stop loss below the right shoulder @ 1.2130. Total trading risk is 398 pips. Price target should be at least 597 pips or better. Profit target was hit about 1 month later.