24 replies to this topic

[TomD]

just want to coment that I think the "Head and shoulder" pattern is the most over used and misused chart pattern out there

[traderpaul]

Yep

[uncleharley]

On this forum it certainly is.

[*JB*]

just want to coment that I think the "Head and shoulder" pattern is the most over used and misused chart pattern out there

I agree!

To be used correctly -- IMO -- one should look to play it BOTH ways...especially if it fails!!!

1 -- A H&S that breaks the neckline should be traded -- but a violation of that neckline is a signal to get out of the trade and look to go back long -- as with number 2 below.

2 -- A H&S that fails to break the neckline -- or a retest of the neckline after it is first broken -- and then goes on to take out the right shoulder is a very often a HUGE opportunity for catching a big move in a continuation of the original trend.

In general any formation that fails is OFTEN a much stronger signal than the "expected" move one sees as it forms....most people just get out when these formations fail, sit buy and miss the bigger move.

[fib_1618]

From what I have observed over the years, most geometric and/or technical patterns that yield measuring objectives are misused because most don't even consider the key characteristic of all of these patterns....volume. Volume of a price structure is very important in truly identifying any or all price pattern analysis, and seperate what looks "visual" from those where actual trading positions can and should be applied. Fib

[Rogerdodger]

Here is an example of a FAILED H&S:
http://stockcharts.com/def/servlet/SharpChartv05.ServletDriver?chart=$indu,uu[e,a]daclyyay[dd][pb50!b200][vc60][iub14!la12,26,9][j33565023,y]&r=4890.png

[fib_1618]

I am taking the opportunity to zoom in on the price area in which RD posted previously as to provide an example of how important volume is in any or all price pattern analysis.

The key volume characteristic of a head and shoulders pattern is that the volume that accompanies such a price structure should have above average volume on the left shoulder, as much if not more when forming the head, and then lesser than average volume on any construction of the right shoulder. The other key element is that the formation of the head must have greater volume than that of any low point from where the left shoulder ends and the head begins.

As represented by the Dow chart shown below, the volume characteristics of the right shoulder may have been one idea, but the "head" of the pattern was barely able to maintain greater than average volume, and never took out the climatic volume low of late November.

Because of this, the pattern being traced out was more than likely a consolidation pattern, which eventually did lead to the smart advance that followed in the December period.

Fib

http://stockcharts.com/def/servlet/SharpChartv05.ServletDriver?chart=$indu,uu[w,a]dahayyay[d20031001,20031201][pc200][vc60][i]&r=5696.png

[david_neeran]

just want to coment that I think the "Head and shoulder" pattern is the most over used and misused chart pattern out there

I agree!

To be used correctly -- IMO -- one should look to play it BOTH ways...especially if it fails!!!

1 -- A H&S that breaks the neckline should be traded -- but a violation of that neckline is a signal to get out of the trade and look to go back long -- as with number 2 below.

2 -- A H&S that fails to break the neckline -- or a retest of the neckline after it is first broken -- and then goes on to take out the right shoulder is a very often a HUGE opportunity for catching a big move in a continuation of the original trend.

In general any formation that fails is OFTEN a much stronger signal than the "expected" move one sees as it forms....most people just get out when these formations fail, sit buy and miss the bigger move.

Weclome back, an excellent post.

I've heard or read or both, that the DOUBLE BOTTOM is one of , if not the most, reliable of indicators. Anyone can confirm and elaborate on this?

[Sentient Being]

From what I've seen the problem is consistancy of the individual. But maybe I'm projecting there.