Recently, trading and investing are becoming hot topics in the world. You may often find many people encouraging each other to do trading since it will provide them profit. However, before deciding to join the trading market, you have to understand the property and phenomenon of trading. It will help you to decide the next step since your action will determine the lost risk or profit. One of the terms that should be understood is the head and shoulders pattern. What is it?
In order to understand what the pattern of the head and shoulder is, you may identify the form of this pattern. There are three shapes of this pattern. The first one is the left shoulder. It is formed when the price is rising. After that, it is followed by a decline. The second one is the head which is made from the rising price. It leads to the highest peak. That’s why this peak is known as the head peak. The last one is the right shoulder. It is made from the decline – rise – and decline of the price. However, the peak is lower than the head peak. Well, this pattern also has the inverse version. It is called inverse head and shoulders or head and shoulders bottom.
Well, the formation head and shoulders trend in trading is caused by the market actions. The prior bullish trend can cause a waning momentum. It will lead to the initial peak or the left shoulder. Then, the bulls force the price to increase again. It will lead to the head peak since the bulls will dominate the market. After that, the bulls will fall again. However, it will try to move upward again which causes the right shoulder. However, after that, the bulls will fall and move to the ground. You may use this pattern to determine the high probabilities of reversal.