Live Trade In Gold | Head And Shoulders Pattern
March 25, 2013 at 9:23 PM (QQQ)(DIA)(GLD)(SPY)(FB)
Live Radio Trade Using CFRN Setup w/ Head And Shoulders Pattern
On today's broadcast we were pressed for something to do, so we took a trade. Based on the emails I've received since, it sounds like you guys would like to see a little more of this. Keep sending the emails or use the comment section below to let me know what you're thinking.
Michael pointed out the HnS Pattern as he was wrapping up the Daily Recap of the Live Trading Room. Before we get into the specifics of the trade, let's make sure everyone knows exactly what a HnS Pattern look likes and the market action it often foretells.
Keep in mind, each time the market draws this pattern, it will take artistic license. In other words, it won't look exactly the same. Sometimes the shoulders will be lumpy, or rounded, even slightly disfigured. One shoulder may be higher than the other. The head may be pointy as depicted here, or it may be rounded, or flat, or just a bit odd. Spend some time going through historic charts and use your charting package to highlight and outline as many of these patterns as you can find. Over time, they will start to leap out at you.
Trading the Head and Shoulders Video
Wake up! On the off chance you didn't make it through the entire video, let me spell it out -
The HnS Pattern is a Bearish Price Pattern. When price drops below the neckline, we expect price to drop a distance equal to the top of the head down to the neckline. A nuance you will want to watch for is called the "Trader Vic". Why is it called that? Because a guy named Vic wrote about it in a book. What is it? Simply that price will often retest the neckline before it continues down. Why does it do that? Because important areas and prices are almost always tested.
Reliable? According to Edwards and Magee (the Brother's Grimm of Technical Analysis), the Head-and-Shoulders pattern is considered as one of the most reliable chart patterns “by all odds”. Martin Pring says “probably the most reliable of all chart patterns”. John J. Murphy goes on record saying “probably the best known and most reliable of all major reversal patterns.” In August 1995, the New York Federal Reserve published a computer study on the validity of the case: “Head-and-Shoulders: Not just a flaky pattern.” However, when push comes to shove, the % of wins over losses are no better than other chart patterns such as Double Bottoms and Double Tops.
So what's the big deal? If there is no definable "edge" to this pattern, why have I devoted an entire article to it? Great question! I want you to begin to look at this pattern through the CFRN Lens. When this chart pattern and many others appear, you may or may not get a confirming trade entry on the CFRN Slingshot. If you go back through time as I suggested earlier and highlight every HnS Pattern you can find, and then overlay the Slingshot, you will be quite astounded at the change of % when using the Slingshot Entry in conjunction with the chart pattern.
Employing this one technique will literally put you Head and Shoulders above the competition.
Monday's Live Radio Trade
;)
CFRN Slingshot Entry
This was a "picture perfect" trade setup. After the fact, it is easy to see that the trade almost lived up to its traditional technical expectation. Based on the distance from the head to the neck, we would anticipate a 30 tick move. Click the chart above to see how it turned out. On the show, we we took only 9 ticks out of the move. Why? That's a deep question. Take the Free Trial and I'll answer it.
Summary - Most traders have a favorite chart pattern or two. However, we all get frustrated when they don't do what the Technical Analysis books say they should do. What if you could teach an old dog new tricks? What if you could enhance the win ratio of your favorite pattern? Would that put some pep in your step? Spend 5 days in our Live Trading Room. Download the Platform and Indicators. Look for the value on your own screen, on your favorite pattern. I think you'll be pleasantly surprised. If you like to trade larger time frames, come on in and we'll show you how to do it using the exact same setup. 15 Minutes? Hourly? Daily? Weekly? 610 Tick? Volume Charts? We do it all with the CFRN Slingshot!
(so can you)
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