Different Variations of the Head and Shoulders Forex Pattern and How to Identify Them

The head and shoulders pattern is one of the most popular and reliable chart patterns in forex trading. It is a reversal pattern that indicates a potential change in trend, from bullish to bearish. The pattern consists of three peaks, with the middle peak being higher than the other two, forming a shape similar to a head and shoulders.

While the basic structure of the head and shoulders pattern remains the same, there are different variations that traders should be aware of. Each variation provides valuable information about the strength and potential outcome of the pattern.

1. Standard Head and Shoulders Pattern:

The standard head and shoulders pattern is the most common variation. It consists of three peaks: a left shoulder, a head, and a right shoulder. The neckline connects the lows between the left shoulder and the head, and between the head and the right shoulder. The pattern is considered complete when the price breaks below the neckline.

To identify the standard head and shoulders pattern, look for the following characteristics:

– The first peak (left shoulder) is formed during an uptrend.

– The second peak (head) is higher than the left shoulder and represents a failed attempt to continue the uptrend.
– The third peak (right shoulder) is lower than the head and similar in height to the left shoulder.
– The neckline connects the lows between the left shoulder and the head, and between the head and the right shoulder.

– The break below the neckline confirms the pattern.

2. Inverse Head and Shoulders Pattern:

The inverse head and shoulders pattern is the opposite of the standard pattern and indicates a potential trend reversal from bearish to bullish. It consists of three valleys: a left shoulder, a head, and a right shoulder. The neckline connects the highs between the left shoulder and the head, and between the head and the right shoulder. The pattern is considered complete when the price breaks above the neckline.

To identify the inverse head and shoulders pattern, look for the following characteristics:

– The first valley (left shoulder) is formed during a downtrend.

– The second valley (head) is lower than the left shoulder and represents a failed attempt to continue the downtrend.
– The third valley (right shoulder) is higher than the head and similar in depth to the left shoulder.
– The neckline connects the highs between the left shoulder and the head, and between the head and the right shoulder.

– The break above the neckline confirms the pattern.

3. Head and Shoulders Top:

The head and shoulders top is a bearish continuation pattern that occurs within a downtrend. It is formed by three peaks: a left shoulder, a head, and a right shoulder. The neckline connects the highs between the left shoulder and the head, and between the head and the right shoulder. The pattern is considered complete when the price breaks below the neckline.

To identify the head and shoulders top pattern, look for the following characteristics:

– The first peak (left shoulder) is formed during a downtrend.

– The second peak (head) is higher than the left shoulder and represents a failed attempt to continue the downtrend.
– The third peak (right shoulder) is lower than the head and similar in height to the left shoulder.
– The neckline connects the highs between the left shoulder and the head, and between the head and the right shoulder.

– The break below the neckline confirms the pattern.

4. Head and Shoulders Bottom:

The head and shoulders bottom is a bullish reversal pattern that occurs within an uptrend. It is formed by three valleys: a left shoulder, a head, and a right shoulder. The neckline connects the lows between the left shoulder and the head, and between the head and the right shoulder. The pattern is considered complete when the price breaks above the neckline.

To identify the head and shoulders bottom pattern, look for the following characteristics:

– The first valley (left shoulder) is formed during an uptrend.

– The second valley (head) is lower than the left shoulder and represents a failed attempt to continue the uptrend.
– The third valley (right shoulder) is higher than the head and similar in depth to the left shoulder.
– The neckline connects the lows between the left shoulder and the head, and between the head and the right shoulder.

– The break above the neckline confirms the pattern.

In conclusion, the head and shoulders pattern is a powerful tool for forex traders to identify potential trend reversals. By understanding the different variations of the pattern and how to identify them, traders can gain valuable insights into the market and make informed trading decisions. It is important to note that these patterns should not be used in isolation and should be confirmed by other technical indicators and analysis techniques to increase the chances of success.