"Head and Shoulders" figure + signal indicator
Good afternoon friends!
The Head and Shoulders is a well-known figure in technical analysis that has managed to appear in many well-known books on trading. In fact, the figure has become an integral part of technical analysis, to this day maintaining its relevance as a tool for predicting market trends. However, even proven methods require a modern approach - it is a sin not to take full advantage of the century of automation. Today we look at the Head & Shoulders Dashboard indicator - an automatic tool for finding patterns on a variety of charts, with the ability to fine-tune and notify about new shapes.
Parsing a figure
The Head and Shoulders pattern is a well-established psychological model of market players that has not changed for decades. Each new quote is the result of a fight between bulls and bears, but over a relatively large period of time, this fight takes on a more correct recognizable form. Since all traders see the same chart, when identifying a familiar formation, their behavior is synchronized - the emotion factor begins to act.
The pattern itself consists of three parts - a high peak in the middle and two smaller peaks on the sides. Thus, the “shoulders” of the figure form the first and second peaks, and the “head” forms the peak in the middle. The support line drawn along the lows of the figure is also a signal line - its breakdown determines a change in trend.
The first small peak and the subsequent drop means weakening of the upward impulse - loss of bulls' enthusiasm. However, while maintaining inertia, the price continues to move upward, forming a higher maximum. At this stage, the likelihood of continued bullish movement remains. But, as soon as the price drops to the level of the previous minimum, further developments are already predetermined. The bulls make their last attempt at growth, but, as a rule, the price reaches only the nearest resistance level - the level of the first peak, after which it remains to wait for the support level to break through and go down.
There is also a reverse figure - an inverted Head and Shoulders, which forms a buy signal. In this case, instead of three peaks, we have three lows, with the lowest in the middle. The pattern signals the completion of a downtrend and the formation of a new motion vector.
Head & Shoulders Dashboard Indicator
The indicator, which is set according to standard instructions, provides a summary table of patterns from all currency pairs and timeframes. Each pattern is indicated by the name of the instrument, the timeframe, the direction of the signal (bullish or bearish), the time of formation (bars back) and an instant reference to the chart of the figure. By clicking on the button with the name of the instrument and the timeframe, a chart with the detected pattern will open.
- Symbols - comma separated list of tools;
- Is ... Timeframe Enabled - enables or disables the search for patterns on a specific TF;
- Sort By - by what indicator to sort the found patterns. It is worth noting that sorting is also available by clicking on the column heading;
- Sort Type - sorting in ascending order (ascendent), or in descending order (descending);
- Price Proximity Percent - accuracy of pattern construction. A larger value will allow you to find more setups;
- Fill Patterns with Color - draw shapes with filling;
- Display Head and Shoulder - enable / disable the display of a traditional figure;
- Display Reverse Head and Shoulder - enable / disable the display of the inverse figure;
- Depth, Deviation, Backstep - parameters of the standard ZigZag indicator;
- Alert Title - alert title;
- Popup Alerts - enable / disable alerts about new signals in the terminal.
Having received a signal about the formation of a new figure, the first thing we need to determine is the presence of a continuous unidirectional movement. This implies a trend lasting more than 100 bars, regardless of the selected timeframe.
Further, having determined that the trend is upward, we are waiting for the formation of a pattern. At the beginning of the formation of the second shoulder, we draw a support line for minimum oscillations. This will be a signal line, breaking through which will indicate a price reversal.
You need to enter the market after breaking through the support level. Confirmation is the closing of the candle after the level - at the opening of the next open a market order for sale.
Stop loss is set just above the peak of the second shoulder. In some cases, the price may try again to test the nearest resistance level, and this point must be taken into account when setting the stop.
The Head and Shoulders is a time-tested figure that, if correctly identified, allows you to enter the market at the beginning of a long-term trend. This indicator greatly simplifies the monitoring of Price Action patterns, timely warning of the appearance of a new signal. You just have to analyze the found setup and make the final decision on entering the transaction.
Instructions for installing indicators in MT4