Chart pattern trading strategy is very popular among the experienced traders. They use the major chart pattern to filter out the best signals. Being a new trader, you might not understand how this market works. But once you start to deal with the complex nature of this market, you can expect to make a big profit. Though chart pattern trading strategy is mostly for the advanced traders, this article will teach you the perfect way to use the head and should pattern.
Head and should pattern:
The head and shoulder is bearish reversal pattern and it found usually at the top of the bullish trend. Being a new trader, you might think spotting the pair in the lower time frame is the most efficient way to make more money. But if you try to trade the major chart pattern in the lower period, you are not going to make any profit. Those who trade the major chart in the lower period always loses money. Though the head and shoulder pattern is a powerful bearish reversal pattern, still you must learn its use properly.
The neckline acts as the critical support for the head and shoulder pattern. If the bears manage to break below the neckline, you may consider it as a bearish reversal signal. But the break of the neckline might be false and you must have the skills to analyze the market data. Unless you can analyze the break with a high level of precision, you are going to lose most of the trades. You need to look for the daily closing of the price below the neckline before you think about executing short orders.
Executions of the trade:
Executions of the trades in your Forex trading account based on the head and shoulder pattern in a very tough task. Those who are new to the trading industry are always trying to make more profit by following the aggressive trading method. But aggression always forces you to overtrade the market. When you spot the head and shoulder pattern, you can’t trade the market with aggression. If you become aggressive to trade the pair, you might lose a big sum of money. Execute the short orders after the breach of the neckline support. Until you get the perfect setups in the daily or weekly time frame, it’s better not to place any trade. Remember, you are dealing with the trend reversal trading strategy. So, any minor mistake might cost your capital.
Dealing with the major news:
The breakout of the neckline is nothing but the results of high impact news. So, without analyzing the news factors, you should execute any trade. The pro traders are making big profits since they know the proper way to analyze the major news. If you want to succeed at trading make sure you are not pushing yourself to the edge. Taking too much risk and trading the head shoulder pattern without doing fundamental analysis is a big mistake.
Analyze the risk factors:
You must analyze the risk factors before you execute the trade based on the head and shoulder pattern. Those who take more than a 3% risk might even blow up the trading by using the reversal pattern strategy. Its true chart pattern trading strategy is one of the most effective ways to make a profit in the Forex market but it doesn’t mean you will be placing the orders without following the conservative method. No matter which system you follow, you might lose trades without having any prior notice. For this very reason, the elite traders always prefer to trade with less than 1% risk. If you can follow their risk management policy, you will never blow up the trading account. Most importantly, you will have a stable mindset. And those who gained control over emotions, always make a decent profit.