Charting Tools - Head & Shoulders

Charting a Head & Shoulders (H&S) Formation:

  1. Select the H&S Tool from the Charting Toolbox.
  2. Position the mouse pointer where you would like to place the Left Shoulder (LS) point and left click to place.
  3. Move to the valley point between the LS and the Head, left click to place.
  4. Move to the Head point and left click to place.
  5. Move to the valley point between the Head and Right Shoulder (RS), left click to place.
  6. Move to the RS point and left click to place.

Moving H&S Drawing:

Select the H&S drawing by clicking on it, drag to the new location and release the mouse button to place.
Note:  The tool is selected when a line appears connecting the LS, H, and RS.

Deleting H&S Drawing:

Select the H&S drawing by clicking on it and press the Delete Key on your keyboard.

Resizing the H&S Drawing:
  1. Select the H&S drawing by clicking on it.  The drawing is selected when boxes appear on the corners.
  2. Click on one of the boxes to drag the select point and release the mouse button.

Changing Properties of a H&S Drawing:

  1. Right-Click on the drawing to view the properties menu. (see below)
  2. Properties that can be changed are:
    1. Foreground: Changes the line and arc color of the H&S drawing.
      Note: The line is only seen when the drawing is selected.
    2. Line Thickness: Changes the thickness of the H&S line.
      Choose values from 1-6.
    3. Line Style: Changes The line style of the H&S line, which shows when the line is selected.  Choose from solid, dashed, dotted and more.
    4. Arc Thickness: Changes the arcs formed at the LS, H, and RS points. Choose values from 1-6.
    5. Font: Changes the Font, Size, Style, and Color of the H, LS, and RS.
    6. Show Text: Select to view or hide the H, LS, and RS.
    7. Send to back: Changes the layer of the tool.  This option is used when more than one tool is in the same area of the chart. Click on Send to back when you need to access a tool under the H&S drawing.

 

Head & Shoulders Formation:
This formation has three definite peaks:  the Head, Left Shoulder and Right Shoulder.  The middle peak, the Head (H) is higher than either shoulder (LS, RS).  This formation anticipates a drop in price below the Neckline (see below). Unlike the 1-2-3 Formation, a Head and Shoulders Formation can appear anywhere within a chart.

To trade a Head and Shoulders Formation, simply place a sell order on the break of the Neckline.  Your stop loss order should then be placed just above the Head.  The stop loss order can also be placed above the Right Shoulder as a more conservative point.

Inverted Head and Shoulders:
This formation is simply an inverted version of the Head and Shoulders Top Formation.  Therefore, an Inverted Head and Shoulders Formation anticipates a rise in price above the Neckline.

To trade an inverted Head and Shoulders Formation, place a buy order on the break up of the Neckline.  Then place a stop loss order just below the Head.  The stop loss order can also be placed below the Right Shoulder as a more conservative point.