Saturday, April 15, 2006
Head and shoulders top
One of the most reliable reversal signals is a head and shoulders formation. As the name implies, it is created as a result of three congestion areas. The first forms a shoulder, the second the head and the third a second shoulder. The head congestion is above the shoulders, which both form on the same support line and within the same basic range.
In the case of a head and shoulders top, the reversal of a bull market trend is signalled. The projected target lower is the same distance below the neckline as from the neckline to the head. A break of the neckline not only signals a move to the target area, but also confirms the trend change and the start of a new bear market trend.
Rallies are generally associated with increasing volume during a bull market phase, therefore when volume decreases on a market advance it can signal a potential reversal. The head section of the head and shoulders is often accompanied by decreased volume, relative to past advances. The right shoulder, too, often has very light volume associated with it, but the break of the neckline and the subsequent move lower will generally see volume increase.
A break of the neckline will often see price retest the old neckline, which then becomes resistance, prior to the major move lower. As a result there is often a second opportunity to establish a position if you miss the initial neckline break.
http://www.asx.com.au/research/charting/library/head_shoulders.htm
In the case of a head and shoulders top, the reversal of a bull market trend is signalled. The projected target lower is the same distance below the neckline as from the neckline to the head. A break of the neckline not only signals a move to the target area, but also confirms the trend change and the start of a new bear market trend.
Rallies are generally associated with increasing volume during a bull market phase, therefore when volume decreases on a market advance it can signal a potential reversal. The head section of the head and shoulders is often accompanied by decreased volume, relative to past advances. The right shoulder, too, often has very light volume associated with it, but the break of the neckline and the subsequent move lower will generally see volume increase.
A break of the neckline will often see price retest the old neckline, which then becomes resistance, prior to the major move lower. As a result there is often a second opportunity to establish a position if you miss the initial neckline break.
http://www.asx.com.au/research/charting/library/head_shoulders.htm
# posted by Cherie : 3:31 PM
