CatFx50 - page 787

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Hi!

Investopedia:

Head and Shoulders pattern:

A technical analysis term used to describe a chart formation in which a stock's price:

1. Rises to a peak and subsequently declines.

2. Then, the price rises above the former peak and again declines.

3. And finally, rises again, but not to the second peak, and declines once more.

The first and third peaks are shoulders, and the second peak forms the head.

The "head-and-shoulders" pattern is believed to be one of the most reliable trend-reversal patterns.

However, the security will not always just continue in the direction suggested by the pattern after the breakout. For this reason it's important to be aware of what is known as a "throwback" move. This situation occurs when the price breaks through the neckline, setting a new high or low (depending on the pattern), followed by a retreat back to the neckline.

This move back to the neckline is considered to be a test of the pattern and the newly reversed support or resistance. Remember that when a trend shifts (or a reversal pattern is confirmed), what was once support now become resistance, and vice versa.

While it can be alarming to see a security move in the opposite direction of the trend suggested by the pattern, it isn't all that bad. The reason being that the successful test of this new level of support or resistance helps to strengthen the pattern and its suggested new direction. So, it's important to wait for the pattern to test out and not sell out too quickly - before the pattern makes its bigger moves.

Volume

In technical analysis and chart-pattern analysis, volume plays an important role as it is used as a secondary indicator. Volume indicates activity and money movement. When volume is high, there is a lot of activity and money changing hands - making it an important indicator to follow.

For the head-and-shoulders pattern, volume is used mainly at the point of breakout to help confirm the pattern. At this point, it's important that the breakout happens on a large-volume move. For a head-and-shoulders top, when the price breaks below the neckline (in a downward direction), it's best when this occurs during a large volume increase, which signals heavy selling. This strongly indicates that the underlying supply and demand in the market is moving in the same direction the chart pattern is predicting.

Volume can also be used as a secondary indicator during the formation of the pattern, well before the breakout, to gain an idea of the pattern's strength.

For a head-and-shoulders top, the left shoulder should show heavy volume as it hits its new peak. Low volume should take the left shoulder down to the neckline. The run towards the peak in the head should be on lighter volume compared to the peak formed in the left shoulder.

This should be a warning, as volume should move with trends - not against them. The peak formed in the right shoulder should be seen with even lighter volume than in either the head or the left shoulder. And again, the volume should be high when the neckline is broken, which is by far the most important area to watch in terms of volume. If the volume is lighter on the neckline break, the chances of the price moving back to the neckline after breaking is greater than if the neckline break was accompanied by large volume.

This interaction of volume and price movement in forming the reversal signal is not set in stone. However, it is the general tendency in the chart pattern.

In FOREX, we do not know the right volume!!

Price Objective

An important, but often overlooked, factor in technical analysis and chart patterns is the calculation of price objectives. This is a measure of where the price is considered to be headed, based on a confirmed pattern.

While the price's direction is already known, based on the signal, what needs to be calculated is the projected price movement. This is done so that targets can be set, protective stops can be instituted and the worth of a trade can be evaluated.

This is measured based on the height of the chart pattern, which is essentially the distance in price between the peak of the head and the neckline. For example, let's say that in a head-and-shoulders top, the peak of the head is formed at $50 and the neckline was established at $40 - a difference of $10.

The price objective is calculated by subtracting the price at which the pattern breaks the neckline ($40) by the difference between the head and the neckline ($10). Based on this example, the price objective is $30 ($40-$10).

This price objective is not an absolute and is used as a guideline to the attractiveness of a trade. The larger the difference between the objective and the price at the neckline, the more worth the trade has, as it will yield greater returns.

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Well, well, well. Look at picture attached. We have a regular H&S pattern on our beloved EURUSD. According to the standard rules, EURUSD is set right now to go to 1.40xx. That's a move, pals!!

Back to standard rules again: a "throwback" is expected. That throwback should test the neckline (resistance now) @ 1.4521.

Problem with that is that pattern is world known. Things are not as easy as we think. Cause, we could sell now with a stop at 1.4550 and target at 1.4090. So, you risk 125 pips to make 350. Not bad, isn't it. Or you wait for a pullback. Anyway, the right place to sell EURUSD was at 1.4520. Had you done this and you'd be right now @ + 100 without any pain at all.

What will happen next week? Wish I knew that!!

All I can say is that while below 1.4589, EURUSD is set to go to 1.4384 - 1.4373 - 1.4341. It needs to break then 1.4298 and hold below that level to think about 1.4093 and 1.4055.

In case EURUSD makes a pullback to neckline at 1.4521, we should look at it to spot another sell entry ( @ 1.4550) or the end of the H&S pattern.

I think Central Banks are in now. That Central Bank meeting has secret agreements and one of them could be to help BCE to stop EURUSD to keep going to the moon.

We'll see, cause money has no friends.

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Hi!

H&S pattern is still on. EURUSD has made a weekly low at 1.4309, just 11 pips shy of my 1.4298 level.

EURUSD is trading below neck line at 1.4521. Its weekly close is 1.4380.

Watch 1.4521 - 1.4309 - 1.4298.

Market is on holydays right now.

Marry Christmas and Happy New Year to all.

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eurusd_1.jpg  96 kb
catfx50.jpg  143 kb
wr.jpg  111 kb
 

Hi!

Watch 1.4521 - 1.4309 - 1.4298.

Saw what happened when EURUSD broke 1.4521?

EURUSD has made a high so far @ 1.4638.

Files:
eurusd_2.jpg  125 kb
 

Dear Nina,

In CatFX50 rule level 3, it's said : "For instance, we are in bullish mode: price above EMA 50 and Hist_StepMA_Stoch in green. Suddenly, price goes down crossing or without crossing EMA 50 and obviously without opening below it. Hist_StepMA_Stoch changes to red. We buy when price goes up again always validated by Hist_StepMA_Stoch that should change to green again"

But if I watch the chart, many times I found in bullish mode, when prices went down without crossing EMA 50 and obviously opened above EMA 50, Hist_StepMA_Stoch didn't change to red, it's still in green. After that, price went up again. So, should we take this long signal? It's a valid signal too?

Thanks for your attention and answer.

Regards,

Pierre

 
yesican88:
Dear Nina,

In CatFX50 rule level 3, it's said : "For instance, we are in bullish mode: price above EMA 50 and Hist_StepMA_Stoch in green. Suddenly, price goes down crossing or without crossing EMA 50 and obviously without opening below it. Hist_StepMA_Stoch changes to red. We buy when price goes up again always validated by Hist_StepMA_Stoch that should change to green again"

But if I watch the chart, many times I found in bullish mode, when prices went down without crossing EMA 50 and obviously opened above EMA 50, Hist_StepMA_Stoch didn't change to red, it's still in green. After that, price went up again. So, should we take this long signal? It's a valid signal too?

Thanks for your attention and answer.

Regards,

Pierre

Hi. Pierre!

Happy New Year and sorry for the delay.

You could do it, of course. You only need momentum and you should know before doing so where you should place the right stop loss.

Take into account that almost all brokers in Forex world want your money. They trade against you and they are not your friends. If you use a fixed stop loss, you'll be hit hard for those bastards.

 

Hi!

As we are now in a new year, a lot of newbies will start trading FOREX.

As CatFX50 is one of the most viewed threads in our Forex World, let me say something to them:

a.- Good traders do not sell their systems.

b.- Good and profitable traders do not sell signals.

c.- It is almost impossible to trade and post signals at the same time.

d.- There are a lot of traders or wanted-to-be-traders that realized they could make more money without any risk selling than trading.

e.- Forex is a non-regulated market. You are left alone without any right at all.

f.- Brokers want your money and they will do whatever thing to take it from you.

g.- A lot of threads in whatever forum are made by wanna-be-demo-traders. You will never know if the profits they claim are real.

h.- MT4 platform is the one retail brokers love most. Why?

i.- When a broker gives you a leverage of 500 to 1, means that he knows you will lose all you have in your account sooner than later. And if you do not, he will tell you to quit.

j.- Spike news trading is almost dead. Brokers will not fill you. So, do not lose your time and money.

k.- There are a lot of free indicators that repaint.

l.- There are a few professional coders: Igorad, Mladen, Kalenzo, CJA....

I could continue, but I think it is enough.

Good luck!

 
nina:
Hi. Pierre!

Happy New Year and sorry for the delay.

You could do it, of course. You only need momentum and you should know before doing so where you should place the right stop loss.

Take into account that almost all brokers in Forex world want your money. They trade against you and they are not your friends. If you use a fixed stop loss, you'll be hit hard for those bastards.

Dear Nina,

Happy New Year 2008 too...

Thanks so much for your reply.

When I watched the chart for GBP/USD, I found that sometimes in bullish mode, price above EMA 50 and Hist_StepMA_Stoch in green, suddenly price crossed down without crossing EMA 50 and opened above EMA 50, but Hist_StepMA_Stoch still in green. Was it also a Level 3 Signal ? Price then went down in next two bar.

I also noticed that I never saw the Hist_StepMA_Stoch briefly changed color. Was there any wrong setting with my Hist_StepMA_Stoch? I am using Hist_StepMA_Stoch_KV1_Ex_03.

Thank you again for your attention and explanation...

Regards,

Pierre

 
nina:
Hi. Pierre!

Happy New Year and sorry for the delay.

You could do it, of course. You only need momentum and you should know before doing so where you should place the right stop loss.

Take into account that almost all brokers in Forex world want your money. They trade against you and they are not your friends. If you use a fixed stop loss, you'll be hit hard for those bastards.

Dear Nina,

Happy New Year 2008 too...

Thanks so much for your reply.

When I watched the chart for GBP/USD, I found that sometimes in bullish mode, price above EMA 50 and Hist_StepMA_Stoch in green, suddenly price crossed down without crossing EMA 50 and opened above EMA 50, but Hist_StepMA_Stoch still in green. Was it also a Level 3 Signal ? Price then went down in next two bar.

I also noticed that I never saw the Hist_StepMA_Stoch briefly changed color. Was there any wrong setting with my Hist_StepMA_Stoch? I am using Hist_StepMA_Stoch_KV1_Ex_03.

Thank you again for your attention and explanation...

Regards,

Pierre

 
nina:
Hi!

f.- Brokers want your money and they will do whatever thing to take it from you.

i.- When a broker gives you a leverage of 500 to 1, means that he knows you will lose all you have in your account sooner than later. And if you do not, he will tell you to quit.

Dear Nina

Why you said that ? Broker make money becouse the spread or our lost ?

Then if my account make money , broker will ban me later ?

You mean broker is same like a Casino ?

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