Inverted Head & Shoulders Forex Reversal Pattern Trading Strategy

Chart pattern recognition has continues to be an indispensable means of trading the currency market.

The different types of chart setup can lead to a bit of confusion on which one I best for you.

The Inverted Head & Shoulders forex reversal pattern trading strategy deals with one of the more reliable chart setup out there.

Chart Setup

MetaTrader4 Indicators: Mega trend.ex4 (default setting), MUV.ex4 (Input Variable modified; period=28, Colors modified; #0=Magenta, #1=Lime, Colors Width modified; #0=2, #1=2)

Preferred Time Frame(s): 1-Minute, 5-Minute, 15-Minute, 30-Minute, 1-Hour, 4-Hour, 1-Day

Recommended Trading Sessions: Any

Currency Pairs: Any pair

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Buy Trade Example

Fig. 1.0

Strategy

Long Entry Rules

Initiate a buy order if the following indicator or chart pattern gets displayed:

  1. If the “Inverted head & Shoulder Price Action Pattern” pops up on the activity chart, it is a signal that price is about to push higher. A buy signal is triggered when price breaks above the neckline (refer to Fig. 1.0).
  2. If the line of the Mega trend indicator intersects the lime MUV custom indicator line bottom up with price trading somewhat above the lines, it is a signal to go long on the currency of interest.

Stop Loss for Buy Entry: Place stop loss 2-5 pips below neckline.

Exit Strategy/Take Profit for Buy Entry

Exit or take profit if the following holds sway:

  1. If price breaks below the neckline of the “Inverted head & Shoulder Price Action Pattern,” it points to weaning bulls power, as such an exit or take profit is advised.
  2. If the line of the Mega trend custom indicator crosses the lime MUV custom indicator line top downward, an exit or take profit is recommended.

Sell Entry Rules

Enter a sell order if the following takes precedence:

  1. If the “Head & Shoulder Price Action Pattern” (the opposite of an inverted head & shoulder pattern) pops up on the activity chart, it is a signal that price is about to push lower. A sell alert is triggered when price breaks below the neckline as depicted on Fig. 1.1.
  2. If the line of the Mega trend indicator intersects the lime MUV custom indicator line top downward with price trading somewhat below the lines, it is a trigger to sell the pair of focus.

Stop Loss for Sell Entry: Place stop loss 2 pips above immediate resistance.

Exit Strategy/Take Profit for Sell Entry

Exit or take profit if the following rules or conditions takes center stage:

  1. If price breaks above the neckline of the “Head & Shoulder Price Action Pattern,” it points to weaning bears power, as such an exit or take profit is advised.
  2. If the line of the Mega trend custom indicator crosses the lime MUV custom indicator line bottom up, an exit or take profit is recommended.

Sell Trade Example

Fig. 1.1

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About The Trading Indicators

The MUV custom indicator is a Tom Demark (TD) Moving Average indicator for MetaTrader4 and defines the logical locations for introducing stop loss orders or closing a trade, which clearly defines how the creator Tom Demark explains the TD Moving Average indicator.

The Mega trend custom indicator is an enhance Hull Moving Average set to a period of 144.

It does attempt to eliminate lag altogether and succeeds in enhancing smoothing alongside.

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Combines Price Action And Market Volatility To Help You Identify Profitable Entries And Exits Quickly and Accurately.



  • Up To 100 Pips Per Trade With Low Risk
  • Includes Entry, Stop-Loss And Take Profit Rules
  • Learn And Trade This Strategy In only 10 Minutes