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Head and Shoulder and Inverse Head and Shoulder difference

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Here are some educational chart patterns that you must know in 2022 and 2025.
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What is the head and shoulders pattern:-

The head and shoulders pattern is used in technical analysis. This is a typical chart formation that predicts a bullish-to-bearish trend reversal. The pattern appears as a baseline with three peaks, where the outer two are close in height, and the middle is the highest.

The head and shoulders pattern is formed when the price of a stock rises to a peak and then retraces to the base of the previous up-move. Then, the price rises above the previous peak to form a "head" and then back to the original base. Finally, the stock price reaches the level of the formation's first peak before turning down again.

The Head and Shoulders pattern is considered to be one of the most reliable trend reversal patterns. It is one of several top patterns that signal with varying degrees of accuracy that an uptrend is nearing its end.

Formation of the pattern:-
Left shoulder: Price rise followed by a price peak, followed by a decline.
Head: Price rise again forming a higher peak.
Right shoulder: A decline occurs once again, followed by a rise to form the right peak,
which is lower than the head.

What Is the Inverse Head and Shoulders Pattern:-

inverse head and shoulders, also called a "head and shoulders bottom", is similar to the standard head and shoulders pattern, but inverted: with the head and shoulders top used to predict reversals in downtrends.
This pattern is identified when the price action of security meets the following characteristics: the price falls into a trough and then rises again; the price falls below the former trough and rises again; Finally, the price falls again but not to the second trough. Once the final trough is formed, the price moves upwards towards the resistance found near the top of the previous trough.

Formation of the pattern:-
Left shoulder: Price declines followed by a price bottom, followed by an increase.
Head: Price declines again forming a lower bottom.
Right shoulder: Price increases once again, then declines to form the right bottom.

Advantages and Disadvantages of the Head and Shoulders Pattern:-

Advantages:-

Experienced traders identify it easily

Defined profit and risk

Big market movements can be profited from

Can be used in all markets

Disadvantages:-

Novice traders may miss it

Large stop loss distances possible

Unfavorable risk-to-reward possible

Advantages Explained:-

Experienced traders identify it easily: The pattern is very recognizable to an experienced trader.

Defined profit and risk: Short and long entry levels and stop distance can be clearly defined with confirmation openings and closings.

Big market movements can be profited from: The timeframe for a head and shoulders pattern is fairly long, so a market can move significantly from entry to close price.

Can be used in all markets: The pattern can be used in forex and stock trading.

Disadvantages Explained:-

Novice traders might miss it: The head and shoulders pattern may not present with a flat neckline; it may be skewed, which can throw off new traders.

Large stop loss distances possible: Large downward movement over long timeframes can result in a large stop distance.

The neckline can appear to move: If the price pulls back, the neckline might be retested, confusing some traders.

Trade with care.
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