Sentiment: Bearish
Direction: Reversal
What Is The Complex Head And Shoulders Chart Pattern?
A Complex Head and Shoulders is a bearish reversal pattern, most commonly found at the top of a trend. The pattern behaves similarly to a regular head and shoulders, but includes more than one head or more than one left or right shoulder within the formation.
How To Identify The Complex Head And Shoulders Pattern?
Price action forms a head and shoulders pattern, with one or more additonal “heads” or “shoulders” added to the structure.
See head and shoulders for a more detailed description.
What Is The Psychology Behind The Chart Pattern?
The Complex Head and Shoulders pattern is a variation of the standard head and shoulders pattern, and it’s a bearish chart pattern that can provide traders with valuable insights into the market’s psychology.
The pattern typically takes longer to form than the standard head and shoulders pattern and is a sign of a potential trend reversal. Traders interpret the pattern as a sign of an extended tug of war between buyers and sellers, with both sides struggling to gain control.
The psychology behind the complex head and shoulders pattern is similar to the standard head and shoulders pattern, but with more complexity.
Traders view the pattern as a sign that the buyers are losing their grip on the market, and sellers are gaining momentum.
Once the price breaks below the neckline, it’s a signal that the trend has reversed, and traders may enter short positions.
Encyclopedia of Chart Patterns (Wiley Trading)
23% OffHow To Trade The Complex Head And Shoulders Pattern?
To trade the Complex Head and Shoulders pattern, traders typically wait for the price to break through the neckline with a strong volume surge.
The breakdown should ideally occur on higher than average trading volume, as this confirms that there is significant selling pressure behind the move.
Traders may enter a short position once the price breaks below the neckline, with a stop loss placed above the highest peak of the pattern.
The profit target can be set based on the height of the pattern, with the expectation that the price will move at least the same distance as the pattern’s height in the direction of the breakout.
Alternatively, traders may wait for a pullback to the neckline before entering a short position. This approach can provide a better risk-to-reward ratio, as the entry price is closer to the neckline and the stop loss can be placed tighter.
However, it may also result in missing out on some of the initial gains from the breakout. Ultimately, the best approach will depend on the trader’s risk tolerance, trading style, and market conditions.
It’s worth noting that the complex head and shoulders pattern can also result in a false breakdown, where the price briefly breaks through the neckline before reversing course.
Traders should be aware of this possibility. Also be sure to use technical indicators and other tools to confirm the validity of the breakout. Access these tools at TradingView.
Complex Head And Shoulders Performance Expectations Explained
A bearish reversal is expected the majority of the time.
To find potential targets, measure from the neckline to the highest peak of the highest head.
Project the measurement multiplied by 47% to the neckline.