In this live Forex trading example, we managed to trade one of the best Forex chart patterns – the Head and Shoulders. We spotted the structure of the figure and we shorted the GBP/USD on the assumption that the price was about to decrease. Have a look at the video to see how to tackle the Forex Head and Shoulders chart pattern.
Live Trading Example
Signals of the Head and Shoulders Chart Pattern
- The Cable has been following a bullish trend.
- A top was created and the price changed its direction.
- Then a retracement occurred on the chart, the price increased and created a higher top.
- The price repeated this one more time and the price created a third top.
- The last top was slightly lower than the first top, which is a visual characteristic of a Forex Head and Shoulders.
- We traced a Neck Line through the two bottoms at the base of the head.
- We shorted the GBP/USD on the breakout through the Neck Line.
Stop Loss and Target of the Forex Head and Shoulders Trade
We placed our Stop Loss order above the second shoulder on the chart. This way the trade was protected from an eventual turnaround. After all, if the price creates a higher top, this would have contradicted to the structure of the pattern.
We placed the Take Profit order at a distance equal to the vertical size of the pattern. This is the distance between the tip of the head and the Neck Line.
Notice that the end of the trade came with a very sharp price decrease that got the price through the Take Profit level. This sharp move appeared as a result of a strong jobs and manufacturing data coming from the United States.
Bottom line, we collected 28 pips that equals to 0.22% for about 5 hours of trading. Although this is a relatively long period of time considering the amount of profit, the trade is successful and this is the most important thing!