Reversal CFDs Chart Patterns: Head & Shoulders and Reverse Head Shoulders

Head & shoulders CFDs Chart Setup

This is a reversal chart pattern that forms after an extended CFD Trading upward trend. It's made up of 3 consecutive peaks, the left shoulder, the head and the right shoulder with two moderate troughs between the shoulders.

This pattern is considered complete once price penetrates & moves below the neck line, which is drawn by connecting these two troughs in between the shoulders.

To go short, traders place their sell stop cfd orders just below the neckline.

Summary:

• This CFD Trading pattern forms after an extended move upward
• This formation indicates that there will be a reversal in the market
• This formation resembles head with shoulders thus its name.
• To draw the neckline we use chart point 1 & point 2 as displayed below. We also extend this line in both directions.
• We sell when price breaks below the neck line: see the chart below for explanation.

Or the head and shoulders can also form on a slanting neck line, like the cfd example shown below:

Examples of Head & Shoulders Pattern on a Chart

Head & Shoulders Pattern

This chart pattern can also be formed on a slanting neck line, like the one above, the neck-line does not have to be necessarily horizontal.

Reverse Head & Shoulders CFDs Chart Setup

This is a reversal head and shoulders pattern that forms after an extended CFD Trading downward trend. It resembles an upside-down head shoulders.

This pattern is considered complete once price penetrates above the neck-line, which is drawn by connecting these two peaks between the reverse shoulders chart setup.

To go long buyers place their buy stop trading orders just above the neckline region.

Summary:

• This CFD Trading pattern forms after an extended move downward
• This formation indicates that there will be a reversal in the market
• This formation resembles upside down, thus the name Reverse.
• We buy when price breaks above the neck line: see the chart below for explanation.

Examples of Reverse Head & Shoulders Pattern on a Chart

Example of Reverse Head & Shoulders Pattern