Trading Head and Shoulders Pattern

Trading Head and Shoulders Pattern

The example above shows a "Head and Shoulders" pattern formation from the Russell Emini (ER2) 30 minute charts. From January 11 to January 17, 2007, the pattern formed "Head and Shoulders" pattern. A neckline was drawn connecting the bottom of the two "shoulders" to signify the potential breakdown trade. On January 18, ER2 closed below the neckline to confirm a breakdown.

1. Enter a "short" trade below the low of the breakdown bar at 794.

2. Target 62% to 100% of the pattern depth (14 points) from the breakdown level at 794.

3. Place a "stop" order above the neckline at 796.

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