Know About the Advantages and Pitfalls in Head and Shoulder in Tread Market

The head and shoulder pattern is one of the most popular patterns t it provides easier understanding. The head and shoulder chart pattern shows the baseline using three peaks, where the middle peak is the highest one. As the head and shoulder chart pattern appears in all time frames so it can be used by all types of traders and investors.

But like every other thing, this pattern comes with several advantages and disadvantages and in this article, we will talk about all of them as to become a successful trader it is important to know about everything.

Advantages of head and shoulder chart pattern

• When the price will fall, the sellers will begin to enter the market and there will be less aggressive buying.
• When the neckline will come nearer, those who bought the final wave will be on the wrong side, so it will give them an exit position while pushing the price towards a profitable target.
• If you see the stop above the right shoulder, then the trend has gone downwards. As the right shoulder is the lower high than the head, it is likely to be broken till another uptrend happens.
• With the profit target, you will be able to assume the wrong purchases or have purchased the security at the wrong time. This will give you a window to exit your position and it will create a reversal of similar magnitude to the topping pattern that has just happened.
• At the neckline position, several traders may feel uncomfortable and eventually will be forced to exit the position and it will drive the existing price towards the price target.
• During the inverse head and shoulder chart pattern, we would like the volume to expand as the breakout happens. If the volume decreases the volume will show lesser interest to move upwards and will look for some skepticism.

Disadvantages of head and shoulder chart pattern

• To make it work, you need to keep a sharp eye on the pattern as it develops. But, you cannot use this strategy to trade in the market until the pattern completes, so you may have to wait a bit longer.
• It may not be as effective as the first time because the stop levels may be penetrated sometimes.
• You may not be able to reach up to the profit target each time, so the traders may wish to reevaluate how to market variables that can affect their predetermined strategy.
• Head and shoulder chart patterns may not be tradable all the time. It one of the shoulders suffers from a massive drop then the calculated prices may get the hit as well.
• If you want to trade using the head and shoulder chart pattern, you will need to see it from your perspective. While one may see the shoulder, but others see the same thing as the head, so to demolish the confusions, you need to prioritize your understanding first.

Things you need to know about H&C pattern

The H&C or the cup and handle pattern happens in the small time frames, which can be compared to the one-minute chart patterns and in the large time frames too, which can be compared to the daily, weekly or even monthly charts.

The pattern occurs when the price goes down in a U-shaped format and stabilizes a bit before going up and then faces a prior decline, making the chart look like a cup with a handle.

If you want to know about how to trade then we will talk about how much trading capital you should start with, especially if you are new to this. Nowadays market is likely to strengthen that internal view consistently through profits and losses.