How to Trade The Head and Shoulders Pattern in Olymp Trade

If you commit to identifying trend patterns on Olymp Trade, you have higher chances of success.

Why?

That’s because trend patterns are recurring. And once you understand how to unearth them, you are on the right path.

Like in the last three articles in this post, we talk about yet another candlestick pattern, the head and shoulder pattern, ever heard about it.

And later on, I will show you how to open trade positions using this pattern to start making money with it.

Let’s get right to it, shall we?

What is the head and shoulders pattern?

Well, as you already know, trend patterns signify something. They are there to show you what’s about to happen to prices.

Ideally, the head and shoulders pattern belongs to the trend reversal family. This means that the pattern signifies when a trend is about to change direction.

So, why head and shoulder?

To understand it, think of the actual head of a person. You have one head and surrounded by two shoulders.

That is where this trend reversal pattern got its name because it forms a pattern that resembles the head and shoulders.

Ideally, during an uptrend, you know that the bulls are in control, right? Well, they push the price up while the bears are trying to pull the price down.

As the bears drag the prices down, it results in a kind of reversal but it’s just a retracement because the bulls aren’t done yet, which forms our first shoulder.

When the bulls chip in and push it further up, it results in a higher high. This highest price point forms the head.

As the bears overpower the bulls and drag the price lower, it results in the formation of the second shoulder.

A neckline is drawn by connecting two troughs in an uptrend market.

Inversed head and shoulders pattern

The head and shoulder pattern can also be seen during a downtrend.

Here, it is known as reversed head and shoulder. This is because the head and two shoulders are actually facing upside down.

Such reversed head and shoulders patterns happen when the prices are falling but then rises to form the first shoulder, before falling again further down to form the head.

It falls again but not close to the previous fall and then rises, forming the second shoulder.

A neckline is drawn by connecting two peaks during a downtrend.

Before I show you how to trade head and shoulder pattern on Olymp Trade, remember this:

Since this is a trend reversal pattern, you should expect to find it towards the end of a trend.

How to use head and shoulders pattern to open positions on Olymp Trade

It is not enough to know how to identify a trend pattern. You must know how to leverage it to enrich your account.

How to open short positions with the head and shoulder pattern.

During an uptrend, the price will fall and rise even higher and then fall again, forming a head and shoulder pattern.

To trade such a setup, you must exercise a lot of patience, or else you will lose.

It is not enough to wait for the pattern to be fully formed. You must also wait for the right time to open a position.

And when is that?

Do you see the neckline? Well, wait for the price to break and close below the neckline, then open your position.

Remember, the price closing below the neckline is your confirmation of the trend. Otherwise, the price could test the neckline and if you rush in, you may lose your money.

How to open a long position with the head and shoulders pattern 

This is during a downtrend. Head and shoulder pattern is inverted (upside down).

Draw the neckline by connecting the peaks (shoulders from above) to form a sort of trendline.

• Wait for the pattern to be fully formed
• The price to break the neckline
• And close above the neckline

Once all these conditions are met, consider opening a long position because it’s going to be a long ride upmarket.

Final thoughts on head and shoulder pattern on Olymp Trade

Head and shoulder pattern is very reliable. If only you wait till it is fully formed, you have higher chances of actually scoring the profit.

The secret here is to exercise a lot of patience.

Test this strategy on your demo account now, risk-free.