Originally posted at forexfactory on June 11, 2011:
The pattern can mean different things to different people.
A chartist may see it and decide to play it in it’s chart way.
A stop hunting order flow trader may view it as a potential location to look for stops.
But just because a H&S pattern occurs, doesn’t mean that OF traders look to trade against it. Sometimes it may be a great idea to trade against it. Other times it may be a good idea to trade with the chart pattern.
The chart pattern isn’t going to ’cause’ the market move, if the market does move, and there happens to be a chart pattern, then that is just it, it just happened to be there. Nothing more, nothing less. It just happened to form. The chart pattern by itself won’t give you more information.
Now if you went and looked up ‘why’ the chart pattern formed and figured out what the market was thinking, why it is was moving, which market participants are moving the market, etc, that that would be advantageous.
I can surely find you, and I am sure you can find yourself, 50 Head and shoulders pattern that were wildly successful, and another 50 Head and shoulders pattern that were colossal failures. The reason ‘why’ they succeeded or failed had nothing to do with the chart pattern, they had to do with the information that was not revealed on the chart.
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