Head and Shoulder Failure Pattern

December 2, 2010 · Posted in Failed Chart Patterns, Head and Shoulder, Head and Shoulders · Comments Off on Head and Shoulder Failure Pattern 

Head and Shoulder Failure Trade

Today ES (S&P Emini Futures) gapped up about 15 points and by the end of the day closed 25 points up. About 10.15am, ES was showing some signs of initial tiredness and potential pullback. Usually on big rally days, reversal patterns are distinct and occurs over a period of time. Between 9.40am to 10.15am, ES showed a small size Head and Shoulder pattern signaling potential reversal. The neckline was marked at 1199 and the high of the head is at 1203 and high of the right-shoulder is at 1201.25. ES initially traded below the neckline from 10.15am to 10.30am. Then it reversed its trend and started trading above the neckline. When price trades above the neckline, it is a first-sign of failure. The confirmation of Failure occurs when price trades above the second shoulder high. About 11.40am, ES traded above the second shoulder high signaling a confirmation of H&S failure setup. A Long trade was entered at 1201.5. Most pattern failures make powerful moves in the opposite direction. It was evident today as price closed above the Right Shoulder (1201.25) and started to trade a powerful move to 1204.75 (first Target of HS Failure). Target is set the same height as the head to the neckline from the Second Shoulder high. Second Target is at 162% and third target is at 200% of the height above the second shoulder high. Targets are marked on the chart to show how the trade progress.