The forex head and shoulder model is one of the most reliable models in forex trading. When the price reaches a high point and then falls, a reversal pattern is formed, forming two shoulders and one head. Once the form is confirmed, it indicates that the price will quickly reverse direction.

What is foreign exchange trading?

Foreign exchange trading is the process of speculating on the trend of currency pairs. For example, if you believe that the euro/dollar currency pair will appreciate, you would buy the currency pair and hope that it will indeed rise. If your prediction is correct, you will make a profit. You can use technical analysis to understand when to buy or sell, and the head and shoulder shape is an example.

What is the forex head and shoulder shape?

The forex head and shoulder pattern is a reversal pattern formed when prices reach a high point and then fall, forming two shoulders and one head because it fails to form a higher high point. The 'head' is the highest price point, while the shoulders are the lower points on both sides. In a bearish situation, the "head" will be the lowest price point, while the shoulders will be the higher low point for both sides.

How to identify the head and shoulder shape of foreign exchange?

The head and shoulder pattern is easy to find on the chart. Firstly, you need to find assets that are in an upward or downward trend. For a bull market, prices will reach a high point and then form a shoulder. The second shoulder will form at the lower high point, and the head will be the lowest point between the two shoulders. To confirm that the head and shoulder shape is forming, you need to wait for the price to fall below the neckline. The neckline is formed by connecting the low points of the two shoulders. Once the price falls below this line, it indicates that the trend has reversed and the price may reverse. The reverse also applies to the reversal of bearish trends, as shown below;

Step 1: Find markets with obvious upward or downward trends.

Step 2: Find the point where the price reaches a high point and then falls, forming the left shoulder.

Step 3: Find a point where the price reaches a higher peak and then falls again, forming a head.

Step 4: Find the point where the price reaches a low point and then rises, forming the right shoulder.

Once you have found all four points, you can confirm that the forex head and shoulder shape is in place.

Other foreign exchange trading modes

There are many other foreign exchange trading models. Other popular ones include;

1. Sign mode

The flag pattern is a continuation pattern formed when prices consolidate after sharp fluctuations. It is usually rectangular in shape and can be found in both upward and downward trends.

2. Triangle pattern

Triangle pattern is another continuous form that can adopt different shapes. The most common ones are the rising triangle formed in an upward trend and the falling triangle formed in a downward trend.

3. Wedge pattern

The wedge-shaped pattern is similar to a triangular pattern, but more aggressive. It can also take different shapes, but the most common form in an upward trend is a bearish reversal, while in a downward trend is a bullish reversal.

4. Triple Top Mode

This is similar to the head and shoulder pattern, but with three highs instead of two. The triple top does not need to have a "head" or peak like the head and shoulder patterns.

5. Triple bottom pattern

This is the opposite of the triple top pattern, marking a potential reversal from a downward trend to an upward trend.

Three reasons why you should use forex head and shoulder mode

It is one of the most reliable models in foreign exchange trading.

This model has a very high success rate and is one of the most reliable reversal models in foreign exchange trading.

2. It can be found in both upward and downward trends.

This pattern is not limited to one direction, but can be found in both upward and downward trends.

3. Easy to identify.

This pattern is relatively easy to recognize, making it an ideal choice for beginner traders.

Tips for using forex head and shoulder mode

1. Find clear trends.

The first step is to find markets with clear trends. This will make identifying patterns easier.

2. Seek confirmation.

After finding the mode, wait for confirmation before proceeding with the transaction. This may occur in the form of the collar breaking through or below the low point on the right shoulder.

3. Set stop loss.

After entering the transaction, please make sure to set the stop loss at a level that is sufficient to give you breathing space. The last thing you want is to be stopped too early.

4. Gradually profit.

When making a profit, it is best to proceed step by step. This will allow you to stay in the transaction for a longer period of time and potentially earn more profits.

5. Be patient.

Finally, be patient. The head and shoulder form is a very reliable reversal form, but it may take some time to function.

Use head and shoulder mode when trading with DecodeFX

Before using the head and shoulder pattern, please ensure that you have registered with a reputable and regulated foreign exchange trading platform, such as DecodeFx. This provides you with the best trading conditions for seamless execution and management of transactions. Register now and get started!