The Head and Shoulders Strategy

Posted by OliverPearson 0

Head and Shoulders Strategy

The head-and-shoulders strategy is really an interesting method of making a profit on binary options.  The strategy is based on the head-and shoulders chart pattern.

As many years’ experience show the head-and-shoulder strategy yields in 95 percent of all trades.

The head-and-shoulder is a reversal pattern showing that a trend soon reverses. The pattern works well with both an uptrend and a downtrend.

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As you see from the above chart, this pattern is composed of a head, that is, a price peak called as “extremum”, and two shoulders (bottoms) on both sides of the head. The side peaks are almost at the same level this is why they are called as shoulders.

The left shoulder is formed after the top of an uptrend (extremum) is completed. Then, the price decreases touching the support line for the first time. The neckline can be horizontal, or inclined.

The trend rises again and reaches a new peak forming the head.  Then, the price goes down and touches the neckline. This means that the uptrend is broken because the uptrend assumes that each successive high is higher than the previous peak, and but each consecutive low is to be at the same level or lower.

Then, the right shoulder is formed based on the same principle.

The more time formation of the head-and-shoulders pattern takes, the more reliable the strategy is.

Bearish Head-and-Shoulders

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In the downtrend, the pattern mirrors the uptrend pattern. The neckline is a support line in the uptrend and a resistance line in the downtrend. The peak of the head is the deepest low, and the peaks of the shoulders are at a higher level. In case of a bearish trend, buy a CALL option.

The pattern is completed only if a trend breaks the neckline.

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