Head and Shoulders
The Head and Shoulders is a chart patterns indicator used in Skyrexio Strategy Builder for pattern recognition and reversal/continuation signals.
Introduction
The Head and Shoulders is a bearish reversal chart pattern that signals potential SHORT opportunities or LONG position exits. This pattern consists of three peaks, with the middle peak (head) being higher than the other two (shoulders), indicating potential trend reversal from bullish to bearish.
How Head and Shoulders Works
Head and Shoulders is a bearish reversal chart pattern with specific characteristics:
• Three peaks structure - Left shoulder, head (highest peak), right shoulder • Neckline formation - Line connecting the two troughs between peaks • Volume pattern - Typically decreases on head, increases on breakdown • Confirmation requirement - Pattern confirmed when price breaks below neckline • Target calculation - Distance from head to neckline subtracted from breakout point
Key Characteristics
Category
Chart Patterns
Type
Bearish Reversal Signal
Primary Use
SHORT entries, LONG exits
Timeframe
All timeframes supported (1m to 1M)
Confirmation
Neckline break, volume, resistance levels
Strategy Applications
🔴 SHORT STRATEGY (Primary Use)
Head and Shoulders is primarily a SHORT signal - enter short positions when the pattern completes with neckline breakdown.
Base Entry Order (SHORT)
Base Order Condition: Head and Shoulders neckline breakdown
First Condition: Head and Shoulders
Timeframe: 1H
Additional Confirmation:
First Condition: Volume
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (20)
Timeframe: 1HAdditional Entry Orders (SHORT)
Additional Entry 1: Pattern confirmation with momentum
First Condition: RSI
Timeframe: 1H
Operator: Less Than
Second Condition: Value
Value: 50
OR
Additional Entry 2: Breakdown acceleration
First Condition: Close Price
Timeframe: 1H
Operator: Less Than
Second Condition: Low Price
Timeframe: 1HTake Profit Orders (SHORT)
Rule 1: Exit condition - Pattern target reached
First Condition: Close Price
Timeframe: 1H
Operator: Less Than
Second Condition: Low Price
Timeframe: 1H
OR
Rule 2: Exit condition - Oversold bounce warning
First Condition: RSI
Timeframe: 1H
Operator: Less Than
Second Condition: Value
Value: 25
OR
Rule 3: Exit condition - Bullish reversal pattern
First Condition: Inverse Head and Shoulders
Timeframe: 1HStop Loss Orders (SHORT)
Rule 1: Stop loss - Pattern invalidated (break above neckline)
First Condition: Close Price
Timeframe: 1H
Operator: Greater Than
Second Condition: High Price
Timeframe: 1H
OR
Rule 2: Stop loss - Volume surge breaks bearish momentum
First Condition: Volume
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H
OR
Rule 3: Stop loss - Bullish momentum confirmed
First Condition: MACD Line
Timeframe: 1H
Operator: Cross Above
Second Condition: MACD Signal Line
Timeframe: 1H🟢 LONG STRATEGY (Secondary Use)
Head and Shoulders is used in LONG strategies primarily as an exit signal for existing positions.
Counter-Trend Risk: Using Head and Shoulders for new LONG entries is high-risk and should only be considered in extreme oversold conditions with very tight risk management.
Base Entry Order (LONG) - Not recommended
New LONG entries not recommended with Head and Shoulders pattern. Use bullish reversal patterns instead:
Take Profit Orders (LONG) - Exit existing positions
Rule 1: Exit condition - Head and Shoulders signals trend reversal
First Condition: Head and Shoulders
Timeframe: 1H
OR
Rule 2: Exit condition - Resistance level reached
First Condition: Close Price
Timeframe: 1H
Operator: Greater Than
Second Condition: High Price
Timeframe: 1H
OR
Rule 3: Exit condition - Momentum exhaustion
First Condition: RSI
Timeframe: 1H
Operator: Greater Than
Second Condition: Value
Value: 75Stop Loss Orders (LONG) - Protect existing positions
Rule 1: Stop loss - Head and Shoulders confirms downtrend
First Condition: Head and Shoulders
Timeframe: 1H
OR
Rule 2: Stop loss - Neckline breakdown confirmed
First Condition: Close Price
Timeframe: 1H
Operator: Less Than
Second Condition: Low Price
Timeframe: 1H
OR
Rule 3: Stop loss - Volume confirms breakdown
First Condition: Volume
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (20)
Timeframe: 1HAdvanced Strategy Combinations
Multi-Timeframe Head and Shoulders Analysis (SHORT)
Major Resistance Rejection (SHORT)
Risk Management Guidelines
Position Sizing
SHORT Strategy
Standard
Pattern at resistance with volume
LONG Strategy
Avoid new entries
Exit existing positions only
High Volume
Increase confidence
Larger position acceptable
Low Volume
Reduce size
Wait for confirmation
Pattern Reliability Factors
✅ Forms at established resistance levels ✅ Volume decreases on head formation ✅ High volume on neckline breakdown ✅ Clear three-peak structure
Best Practices
For SHORT Strategies
Wait for neckline break - Pattern isn't confirmed until breakdown
Volume confirmation - Ensure high volume on neckline breakdown
Resistance context - Best results at major resistance levels
Target management - Take profits at measured move targets
For LONG Strategies
Exit signal only - Use primarily to exit existing LONG positions
Quick recognition - Exit immediately upon pattern completion
No new entries - Avoid new LONG positions with this pattern
Risk management - Protect capital from major reversals
Common Mistakes to Avoid
Early entry - Entering before neckline breakdown confirmation
Wrong direction - Going LONG on a bearish reversal pattern
Volume ignored - Trading without volume confirmation
Incomplete pattern - Trading before all three peaks form
Market Conditions Analysis
Uptrend
🟢 High (major reversal)
🔴 Very Low (against trend)
Downtrend
🟡 Medium (continuation)
🔴 Low (counter-trend)
Ranging
🟢 High (at resistance)
🟡 Medium (exit signal only)
High Volatility
🟢 High (clear patterns)
🔴 Low (whipsaws)
Low Volume
🔴 Low (wait for confirmation)
🔴 Very Low (avoid)
Related Patterns
Conclusion
Key Takeaways
PRIMARY USE: SHORT entries after neckline breakdown
SECONDARY USE: LONG exits when holding positions
NEVER: New LONG entries with this bearish pattern
ALWAYS: Confirm with Volume and wait for complete pattern formation
Success with Head and Shoulders requires patience to wait for all three peaks to form and neckline breakdown confirmation. The pattern's reliability increases significantly when it forms at major resistance levels with proper volume confirmation.
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