Describing the Head and Shoulder Pattern Forex Trading Strategy
When we talk of forex trading strategy we refer to analytical tools that are used by traders in the forex market in order to determine whether they should buy or sell a currency pair at a given point in time. Strategy for forex trading is usually developed on technical analysis charts or fundamental, latest stock market and economic events. The currency trading strategy that a day trader adopts is usually derived from several signals that are gathered from such analytical tools and help to trigger sell or buy decisions in such a market.
The head and shoulder trading strategy:One such distinct strategy that is used by the experienced trader in the market is the head and shoulders strategy. This particular forex trading strategy can help predict when and where a price reversal will occur before it actually occurs. It helps to pinpoint the time or point when a trend is about to finish off. That paves the way for larger moves on higher levels of trading. Even though such
patterns are executed by experienced traders due to their complexity, there are ways of understanding such a forex trading strategy. The head and shoulder pattern can be understood easily by following certain signs on technical analysis charts. Those who are experienced in following this trading pattern are able to recognize such a pattern easily, akin to recognizing the head and shoulders of a known person.
Characteristics of the head and shoulder pattern:If you wish to understand the pattern of this distinct forex trading strategy, here are the characteristics to look out for:  Such patterns occur when a trending behavior is on the verge of losing steam.  You need to keep an eye out for reversal patterns that are usually signified by breaks in the trend lines.
 These patterns take time to develop but the signal can interpret a big change in the forex trading market.
 If you are using the head and shoulder forex trading strategy there are clear rules to follow as to when to enter or exit the market Identifying the head and shoulder pattern If you view a price chart, the head and shoulder pattern will emerge as two shoulders and a head. These signify three attempts made to continue a certain trend. If you find that there have been three attempts made in continuing a trend, that indicates that a reversing trend is about to take place. Such a point occurs when existing traders exit the market as they are convinced that the price will not be going to new high levels. They might see lows coming up and a down trend emerging and decide to exit the market.
How to make use of such a trading strategy:This forex trading strategy is simple as are the concepts that lie behind identifying the pattern. Even if you are new to forex trading, you will surely recognize the pattern once you have learnt to keep an eye out for the same. In a trending chart you will find three peaks where the middle peak is of the highest height. If you follow the trend line you will also find the signal when the trade needs to be entered. The pattern can be used to evaluate down and up trend markets at an equal level. In such a trading strategy you can find bearish and bullish patterns as well. When the pattern is bearish the head as well as the shoulders will lie above the trend line. This will act as the base and help you decide the entry price where you need to sell if the price starts going below the trend line. The same logic can be used in order to identify a bullish pattern. The head and shoulders will be below the trend line and the central inverted peak will show the lowest price. The trend line will signal the traders to buy as the price will start to go above such a price line. It is necessary to wait and see such patterns emerge in forex trade. The breaks that occur on the neckline or the trend line are important as these signify the upcoming end of a trend and for traders to exit if necessary.
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