Trading Strategy for Head and Shoulders and Inverted Head and Shoulders Pattern - Steemit Crypto Academy - S5W2 - Homework Post for @utsavsaxena11

in hive-108451 •  6 months ago 

Hello All Steemians !!!

Today I'm going to make my Steemit Crypto Academy Homework task by professor @utsavsaxena11 that talking about Trading Strategy for Head and Shoulders and Inverted Head and Shoulders Pattern. Very interesting lessons. Actually I have very little knowledge about this, but I will try to discuss it to improve my writing skills. On this occasion I will try to discuss it.

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Explain Head and Shoulder and Inverse Head and Shoulders patterns in details with the help of real examples. What is the importance of volume in these patterns

Head and Shoulder patterns

The Head and Shoulder pattern is a pattern that helps traders perform technical analysis on the trading chart of a cryptocurrency. This pattern has three forms or market structures that are formed on the chart that shows the price movement, namely the left shoulder, head and right shoulder where one highest peak is in the middle and the other two peaks are lower than the highest peak. This pattern occurs when the market is in an uptrend. This is an indication that the uptrend will end and the market will experience a trend reversal to a downtrend. This pattern can be used as a reference by traders in predicting the cryptocurrency market trend which shows a potential bullish to bearish trend reversal.

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Head and Shoulder patterns from Tradingview

Based on the chart above, the XMR/USDT market is in an uptrend. The Head and Shoulder patterns show rising price movements and is followed by a retracements or pullbacks so that it forms the left shoulder and the first peak. The price movement continues to rise higher than the left shoulder and is followed by a retracement or pullback as well so that it forms the head and the second peak. The price movement continues to rise but is lower than the head and is followed by a retracement or pullback as well so that it forms the right shoulder and the third peak. Here the XMR/USDT market indicates the end of a bullish and a trend reversal to a bearish will occur.

Inverse Head and Shoulders patterns

The Inverse Head and Shoulder pattern is a pattern that helps traders perform technical analysis on the trading chart of a cryptocurrency. This pattern has three forms or market structures that are formed on the chart that shows the price movement, namely the inverse left shoulder, the inverse head and the inverse right shoulder where one highest peak is in the middle and the other two peaks are lower than the highest peak. This pattern occurs when the market is in a downtrend. This is an indication that the downtrend will end and the market will experience a trend reversal to an uptrend. This pattern can be used as a reference by traders in predicting the cryptocurrency market trend which shows a potential bearish to bullish trend reversal.

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Inverse Head and Shoulder Patterns from Tradingview

Based on the chart above, the XMR/USDT market is in a downtrend. The Inverse Head and Shoulder patterns show falling price movements and is followed by a retracements or pullbacks so that it forms the inverse left shoulder and the first peak. The price movement continues to fall lower than the left shoulder and is followed by a retracement or pullback as well so that it forms the inverse head and the second peak. The price movement continues to fall but is higher than the head and is followed by a retracement or pullback as well so that it forms the inverse right shoulder and the third peak. Here the XMR/USDT market indicates the end of a bearish and a trend reversal to a bullish will occur.

The importance of Volume in these patterns

The importance of Volume in these patterns is to give traders a signal that there is high trading volume in the market which indicates many traders are placing sell orders when the head is forming on the chart. The same is true when many traders place buy orders when the inverse head is forming on the chart. In this case, many traders take profits when the highest peak is reached due to potential trend reversal. The chart below shows the XMR/USDT market showing high trading volume when the inverse head formed where many traders entered the market. Trading volume decreases when the inverse right shoulder formed where the trader exits the market.

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Volume of Inverse Head and Shoulder Patterns from Tradingview

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What is the psychology of market in Head and Shoulder pattern and in Inverse Head and Shoulder pattern

Psychology of market in Head and Shoulder pattern

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Psychology of Market in Head and Shoulder Pattern from Tradingview

Based on the chart above, psychology of market in Head and Shoulder pattern is when the DASH/USDT market is in an uptrend and the trader places a sell order. This makes the price move down and forms the left shoulder on the chart. Next the trader places a buy order that makes the price move up exceed the left shoulder and when the highest peak is reached the trader places a sell order to maximize profit. This makes the price move down and forms a head on the chart.

Another trader places a buy order that makes the price move up but does not exceed the head because the percentage of sell orders is greater than the percentage of buy orders. This makes the price move down and forms the right shoulder in the chart. Here the indication of a trend reversal from bullish to bearish occurs when the market structure breaks the neckline and the price movement continue to decreases on the chart.

Psychology of market in Inverse Head and Shoulder pattern

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Psychology of Market in Inverse Head and Shoulder Pattern from Tradingview

Based on the chart above, psychology of market in Inverse Head and Shoulder pattern is when the DASH/USDT market is in a downtrend and the trader places a buy order. This makes the price move up and forms the inverse left shoulder on the chart. Next the trader places a sell order that makes the price move down exceed the inverse left shoulder and when the highest peak is reached the trader places a buy order to maximize profit. This makes the price move up and forms the inverse head on the chart.

Another trader places a sell order that makes the price move down but does not exceed the inverse head because the percentage of buy orders is greater than the percentage of sell orders. This makes the price move up and forms the inverse right shoulder in the chart. Here the indication of a trend reversal from bearish to bullish occurs when the market structure breaks the neckline and the price movement continue to inreases on the chart.

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Explain 1 demo trade for Head and Shoulder and 1 demo trade for Inverse Head and shoulder pattern. Explain proper trading strategy in both patterns seperately. Explain how you identified different levels in the trades in each pattern

Trade for Head and Shoulder pattern

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Trade for Head and Shoulder Pattern from Tradingview

Based on the chart above, the criteria are as follows:

  • Perform a DASH/USDT market analysis that shows the market is in an uptrend and the market structure is forming the left shoulder, head and right shoulder on the chart.

  • Create a neckline that combines the low point that forms after the left shoulder and the low point that forms after the head on the chart.

  • Wait for the price movement which shows a decrease until it breaks the neckline after the right shoulder forms on the chart.

  • Sell entry can be executed on the next candle after the breakout on the chart.

  • Set the stop loss level above the high point of the right shoulder on the chart.

  • Set the target level by measuring the difference between the high point of the head and the low point of the two shoulders. The difference is reduced by the neckline on the chart.

Trade for Inverse Head and shoulder pattern

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Trade for Inverse Head and Shoulder Pattern from Tradingview

Based on the chart above, the criteria are as follows:

  • Perform a DASH/USDT market analysis that shows the market is in a downtrend and the market structure is forming the inverse left shoulder, the inverse head and the inverse right shoulder on the chart.

  • Create a neckline that combines the high point that forms after the inverse left shoulder and the high point that forms after the inverse head on the chart.

  • Wait for the price movement which shows an increase until it breaks the neckline after the inverse right shoulder forms on the chart.

  • Buy entry can be executed on the next candle after the breakout on the chart.

  • Set the stop loss level below the low point of the inverse right shoulder on the chart.

  • Set the target level by measuring the difference between the low point of the inverse head and the high point of the inverse two shoulders. The difference is added by the neckline on the chart.

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Place 1 real trade for Head and Shoulder (atleast $10) OR 1 trade for Inverse Head and Shoulder pattern (atleast $10) in your verified exchange account. Explain proper trading strategy and provide screenshots of price chart at the entry and at the end of trade also provide screenshot of trade details

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Buy Entry for Inverse Head and Shoulder Pattern from Tradingview

Based on the chart above, here I place a trade for the Inverse Head and Shoulder pattern after I analyze the SHIB/USDT market with the following criteria:

  • I use Tradingview with 45m time frame, SHIB/USDT market is in a downtrend and the market structure is forming the inverse left shoulder, the inverse head and the inverse right shoulder on the chart.

  • I create a neckline that combines the high point that forms after the inverse left shoulder at $0.00004030 and the high point that forms after the inverse head at $0.00003880 on the chart.

  • I am waiting for the price movement which shows an increase until it breaks the neckline and retested the neckline after the inverse right shoulder forms on the chart.

  • I placed a buy order on the bearish candle at $0.00003867 after the breakout on the chart. I bought SHIB/USDT using Binance and order details are as follows:
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    Screenshot Order Details from Binance

  • I set the stop loss level below the low point of the inverse right shoulder at $0.00003740 on the chart.

  • I set the target level by measuring the difference between the low point of the inverse head at $0.00003660 and the high point of the inverse two shoulders at $0.00004030 . The difference is added by the neckline at $0.00004300 on the chart.

  • After a few hours, I re-analyzed the SHIB/USDT market and the results showed that the target level was reached when the price movement experienced a significant increase. The chart is as follows:
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    Buy Entry for Inverse Head and Shoulder Pattern from Tradingview

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Conclusion

In the world of cryptocurrencies, one of the factors that traders use before executing trades is to conduct technical analysis and rely on the patterns formed in the market. The Head and Shoulder pattern and inverse Head and Shoulder pattern is one of many patterns that traders can rely on to predict market trend reversals and place buy or sell orders at the right time. This pattern has market psychology and criteria that traders need to understand in order to provide accurate analysis results. By using a variety of trading strategies, traders can provide profitable trading results.

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