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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Download the Inverted Head & Shoulders Forex Reversal Pattern Trading Strategy
Buy Trade Example
Fig. 1.0
Strategy
Long Entry Rules
Initiate a buy order if the following indicator or chart pattern gets displayed:
- 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).
- 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:
- 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.
- 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:
- 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.
- 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:
- 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.
- 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.