 Hi in this video, I'm gonna be talking about the head and shoulders Pattern now the head and shoulders technical pattern is traded as a trend reversal Signal so let's say we have an uptrend. All right, so we have a high a pullback and now we have a higher high What happens is? It's priceful, you know tend to maybe pull back to a certain level then Prices will fail to make a new high because this would be the high This would be the higher low and this would be the higher High When prices fail to make a new higher high This is where? Traders will look to trade this type of pattern now if we Look this would be what would be considered a left shoulder This would be considered the head and this would be considered the right shoulder so that's pretty much where the head and shoulders pattern gets its name so What we want to do is look for a Change in the actual trend so if prices are failing to make higher highs The right shoulder will indicate that and we're looking for a trade to the downside and this is just in an in an uptrend and What a head and shoulders pattern also consists of is what we would call the neckline now the neckline is Drawn from the left shoulder higher low or the pullback to where the right shoulder Begins and Starts to fail right so when I say starts to fail prices are failing to make a new high Now again, this is just the the perfect Head and shoulders pattern. I'm drawing for obviously illustration purposes But on the on a price chart, it won't look so perfect, but you'll get the idea and we'll go through some examples in a bit so traders will look at this pattern here higher highs higher lows then the failure of a higher high to be made and Then they will look To trade a break below the neckline so the neckline connects the left shoulders low and Then really the head shoulders low and then once prices fail to make a higher high I look at they're not making a higher high and start to come down This is where traders will look to get short so In the real world as our as I was saying and prices are never perfect a head and shoulders pattern the neckline on A head and shoulders pattern can sometimes look like this and more than likely will look something like this It won't be a horizontal I say it won't be a horizontal, but it can be traded as a horizontal Level the neckline or it can be traded as a diagonal neckline so You may get something like this where prices are making Higher highs higher lows and then you get a pullback you get a failure on the right shoulder And then what traders will do is look to trade the break of This level so depending on where prices pull back to If prices pull back to Here then traders will trade this as the neckline This is the neckline and the neckline acts as a type of support in a bearish Head and shoulders pattern then this is a bearish head and shoulders pattern because this is an uptrend left shoulder Obviously head and prices are making you know this this up move and so traders are looking to get short So this would be what would be considered a bearish pattern. So this neckline can either be a Diagonal or it can be horizontal and there are even sometimes where traders will trade the neckline also To the downside depending on how far this move Has come down. So what you want to do is always connect the left shoulder with the heads pullback and then the failure for price to move higher Than the head and then be on alert This is where you will be on alert when prices are failing to make a higher high Prices are weaker the trend may come into some sort of consolidation or reversal pattern connect the neckline and then look for a break of the Neckline so let's have a look at this in a real world Scenario on the price chart so here we have the pound Japanese yen 30 minute currency pair chart and we have a clear Level well higher highs and higher lows being made so we've got a move up. We have a pullback We have a another move up. So that's your higher high This would be considered your left shoulder Let's delete that So this would be the left Shoulder this would be considered considered the head and then as prices Have come back down in The trend hasn't been broken yet. So we still you know, this is where the lowest of the left shoulder Which hasn't been broken so Traders will more likely to see You know that this is a maybe just a deeper pullback into a certain level and then we have a move up that fails to make a new high and Then this would be considered The right shoulder So we have the right Shoulder now This is the neckline right which connects the Left shoulders low and then we have We zoom in a bit more Then we'd have the heads Low and what traders will do is connect those two lows So let me Get a better tool Let's get the ray tool Turn on my magnet tool and this would be the level of the neckline So traders will be on alert once prices fail to make a new high and prices start coming down the right shoulder becomes more evident and Then we have a break of the neckline and traders will enter short Let me get my risk reward tool short position on The close of the candle now where do traders or where will traders place? their Their stop-loss Probably behind some swings so you can see that Prices have come down made a little swing here or Above the right shoulder or above the head depending on their risk tolerance I mean some traders may even just put their Their stop-loss maybe just above even that candles high, right but for the safest place It's recommended pretty much to put it at least above a recent swing. This being a pullback It's being the up move and then Down move here. So this would be the most recent swing or the right shoulder or even the head if You have a longer term view and your account You know is big enough to absorb maybe the 1890 100 pips. I mean this this is the Japanese sorry the British pound Japanese yen pair. So Risking, you know around a hundred pips on this is actually quite normal Depending on the time frame that you're trading and obviously you go for, you know, you're your risk reward two to one Now another thing I wanted to also point out is Another way that traders will enter If you didn't necessarily want to get in on the break of the level because maybe your risk reward is a bit too much Would be a retest of the neckline All right, so the neckline is Would in a bullish Sorry in a bearish The head and shoulders pattern the neckline would be considered a Support level that breaks and now comes becomes resistance Right has a good chance of becoming resistant. So if your risk reward was a bit too much As far as your risk was a bit too much What you would then want to do is or what you may want to do is look for a retest of the level and Look for some sort of bearish price action and as you can see you had one two Three several chances to get short on the retest of the neckline. So prices ended up pulling back To here you may not have seen a you know a bearish engulfing or a you know A bearish pin bar at this level on this time frame Maybe you maybe on a lower time frame on a 15 minute a five minute. This may have looked quite bearish But then you do get this pin bar here. You also get a type doji candle You get another you know Rejection here and you even get another well you get a an engulfing candle here. So again with the protection of a A Support term resistance level you have a better risk reward So you can actually get Looked as running the trade a lot longer risking smaller trade sometimes obviously you may not get the pullback You know this may have been the entry and prices could have moved pretty much straight down Could have just went and continue going and you may not get a retest straight away Eventually prices may come back up to this level as well and it may give you an entry There are always pros and cons with a more aggressive entry or a breakout right here As Maybe compared to a more conservative entry if you're looking for a pullback, you obviously That's up to you. What type of trader you are But you do have options when it comes to entering the head and shoulders pattern either the aggressive entry the break of the neckline or wait for a retest of the neckline and What I'll do is I'll also go over a a bullish head and shoulders pattern So it'd be the reverse of the bearish head and shoulders pattern So here we have the euro dollar currency pair on a daily time frame chart and we're looking for a bullish type Head and shoulders pattern and that would be the reverse of what we spoke about previously So we're looking for a reversal of a downtrend looking to be a buyer this time rather than a seller or shorter. So What we have is a Really clear, you know move down here, right and if you're using the trading view platform and You go to here They actually have created a head and shoulders pattern Right, so click on the head and shoulders pattern if you're using trading view. If not, I'll go over this again You know just without the head and shoulders pattern tool So you can see but if we do Click and it has the start of the left shoulder We have a low We have a pullback Now the creation of the head This would be the new low and then we have a pullback Then we have the right shoulder That would be the low And we can see that it creates the neckline as it goes So as prices break The neckline we have our bullish head and shoulders pattern Now as I've said before The safest place really If you're trading any kind of head and shoulders pattern would be to put it Really below or above the right shoulder or the head if you're You know worried about pips on a daily timeframe chart Maybe you shouldn't be trading the the daily timeframe chart, but the safest really area is to put it below Um You know the the right shoulder or the head so The entry would be on the close of the neckline So that would be the candle that broke above the neckline notice that it's not perfect. It's not horizontal We have a downward Diagonal type of neckline the break of the neckline Again traders if they would have put their stock, maybe, you know at the low or just below the low They may have got away with possibly a a one-to-one Risk reward, but what you really want to do is put your stock below the Right shoulder as really a minimum to be fair And then what we have Is prices continued to move Higher and again, we had a potential Retest of the neckline here So let's say for example, let's uh a bit right. So let's say for example You didn't get in on the break and you were waiting for a retest This um this doji type candle May have been an entry bullish doji Maybe you would have went down to a lower time frame And seeing this and maybe try to get into the upside depending on what time frames you do trade. So Please check out our video on time frame analysis as well And that should help with explaining how to enter using the higher time frames to enter on A lower time frame chart, but trading the head and shoulders pattern. You can see that We have a bullish reversal Head and shoulders pattern in a down trend in an up trend. We're looking for obviously A bearish move and get into the short side So I hope this has been explained and you um, you understand everything If not, just give me an email at info at trading 180.com. Um, thank you for watching