Inverse Head And Shoulder Pattern Forex Swing Trading Strategy

December 9, 2016

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Inverse Head And Shoulder Pattern Forex Swing Trading Strategy

This method is the opposite of the head and shoulder pattern. You can use this strategy in swing and day trading.

The market has to be in a downtrend for some time then the inverse head and shoulder pattern will appear. This is then a sign of a bullish trend to come.

Buyers come in at the low which is the left shoulder and push the price up will create the neckline. The sellers then return to the market and push the price to the new low which forms the inverted head. The new low (head) is not sustained as price rises back up due to buyers pushing price up to create a continuing neckline. The sellers enter again pushing the price down to a low, but this low does not exceed the previous low which is the head. This low becomes the right shoulder. Buyers get in and push the price up and this time, the neckline is intersected to the upside. Seller may get in here and push the price down to test the neckline that was intersected which would now act as a support line. Buyers get in and push the price up that will now change the trend.

Trading Rules:

Option 1:

The candlestick must break the neckline in an upward direction.
Place a buy stop order just a few pips (3-5 pips at least) above the high of the candlestick the intersects the neckline.
Place you stop loss 3-5 pips below the low of the right shoulder.

Option 2:

Wait for the price to pullback after it breaks the neckline. The price has to touch the neckline which it intersects. This can be a support line.
Place a buy stop order 3-5 pips above the high of the candlestick that touches the neckline.
Place the stop loss anywhere from 10-50 pips depending on which timeframe you are trading in.

Take profit have 2 options:

Take profit option 1 using the 1:3 risk and reward ratio. This is 3 times the amount you risked in pips.
You can also exit at the previous swing high point.

Use EURUSD daily chart to view template.