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Trading the Head and Shoulders Pattern With City Index Australia

Feb 1 2013 12:00AM

Marketwire

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SYDNEY, AUSTRALIA -- (Marketwire) -- 02/01/13 -- For technical analysts, when the head and shoulders pattern emerges on a given chart, you can almost sense the excitement in the air.

It's one of the most unanimously popular and tried technical trading patterns, and normally signifies a strong reversal in the current price trend.

But how do you read, identify, and trade the head and shoulders pattern? Let's take a brief look.

Typically, the head and shoulders pattern is characterised by the following:

•A price rise •A subsequent decline •A price rise that achieves higher highs than the previous rise •Another decline •A price rise that matches the high of the first price rise •Emergence into strong downtrend that takes out the support or 'neckline'

Once the head and shoulders pattern is complete, a common method by technical analysts is to place buy orders just outside the 'neckline' to capitalise on potential breakouts to the upside. However, throwbacks can often occur, whereby the price fails to make its big move anticipated by the pattern and undergoes a brief but nonetheless alarming reversal.

Just like any other trading method, the head and shoulders pattern should only be used as an indicator, and not an exact science.

Our FX platform offers a range of benefits including leverage to suit, capped variable spreads and 24-hour access to your FX account. Ensure you understand the risks before opening a position.

Trading in CFDs involves significant risk and potential exposure to substantial loss. CFD trading can result in losses that exceed your initial investment and CFD investors do not own or have any rights to underlying assets. Investing in CFDs is not suitable for all investors and CFD trading is not likely to meet the investment objectives, needs and risk profile of most retail investors. You should seek independent advice to ensure that you understand the risks before you trade in CFDs. This advertisement contains general information only and does not take your objectives, financial situation, or needs into account. You should consider our PDS available at www.cityindex.com.au before you make any investment decision. City Index Australia Pty Ltd ACN 141 774 727, AFSL 345646 is the CFD issuer and its CFDs are traded off exchange. City Index Australia Pty Ltd may take the opposite side of your trade as part of its market risk management.



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Source: Marketwire


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