I have been getting messages from fellow traders and seeing a lot of analyses on BankNifty claiming this to be a head and shoulders on TradingView and Twitter. Coming to the point.
1) Is this a head and shoulders??? - Yes
2) Is this a good head and shoulders??? - No
Going by the classic charting rules a good head and shoulders follows symmetry on price and time axis. If the symmetry is missing the success rate of reaching the target after the neckline breakout would be very low. (There are volume factors also to be considered but BankNifty being index we can't account it in our analysis)
Observing the hourly chart we clearly see that the head has formed with PERFECT SYMMETRY! 23 bars decline from the neckline and 23 bars advance from the bottom to the neckline.
3) What would be considered a good head and shoulders in this case?
a) IF right shoulder takes approx 31 bars (or little more) for completion.
b) IF right shoulder forms a bottom between 24710-24500 before bouncing
4) Should we go long if we see a breakout tomorrow? -No. As the odds of success are very low. Moreover we see 200 SMA on hourly chart at 26000 (approx) could act like a snake at box 99 on snake and ladder game and could take you back to lower levels.
Conclusion: It would be safe to exit short trades if neckline is broken decisively. Long trades should be avoided until we get better and clear signal.
Regards,
tRex
Jurassic Park
1) Is this a head and shoulders??? - Yes
2) Is this a good head and shoulders??? - No
Going by the classic charting rules a good head and shoulders follows symmetry on price and time axis. If the symmetry is missing the success rate of reaching the target after the neckline breakout would be very low. (There are volume factors also to be considered but BankNifty being index we can't account it in our analysis)
Observing the hourly chart we clearly see that the head has formed with PERFECT SYMMETRY! 23 bars decline from the neckline and 23 bars advance from the bottom to the neckline.
3) What would be considered a good head and shoulders in this case?
a) IF right shoulder takes approx 31 bars (or little more) for completion.
b) IF right shoulder forms a bottom between 24710-24500 before bouncing
4) Should we go long if we see a breakout tomorrow? -No. As the odds of success are very low. Moreover we see 200 SMA on hourly chart at 26000 (approx) could act like a snake at box 99 on snake and ladder game and could take you back to lower levels.
Conclusion: It would be safe to exit short trades if neckline is broken decisively. Long trades should be avoided until we get better and clear signal.
Regards,
tRex
Jurassic Park
Comment:
The lacklustre breakout says it all. :)
Comment:
After closing all short positions staying away from long position until we get a good signal.
Currently in wait and watch mode
Currently in wait and watch mode
Comment:
As stated above the 200 SMA offering tough resistance. Lets see if its going to act as the snake at box 99 on snake and ladder game which takes you back to lower levels!
Comment:
To friends claiming that I could have still made 400 pts profit above 25500 (neckline breakout) and I missed an opportunity to go long even after spotting this pattern:
1) Whats the risk I had to take to go long above 25500? A SL below 25140 at least. That is almost 360 pts SL. Trading with this kind of risk reward will wipe out trading account soon :)
2) I am conservative trader hence booked 300 pts profit in my short trade and exited rest of the position at cost.
3) If this formed a good head and shoulders as mentioned above I would have had a potential 1200+ target (appox height of the head) after the breakout and depending on the risk reward I would have considered going long.
Hope this answers your questions.
1) Whats the risk I had to take to go long above 25500? A SL below 25140 at least. That is almost 360 pts SL. Trading with this kind of risk reward will wipe out trading account soon :)
2) I am conservative trader hence booked 300 pts profit in my short trade and exited rest of the position at cost.
3) If this formed a good head and shoulders as mentioned above I would have had a potential 1200+ target (appox height of the head) after the breakout and depending on the risk reward I would have considered going long.
Hope this answers your questions.
Comment:
As expected the 200 SMA acted as the snake at box no. 99 :)
Comment:
Here is a neat channel formation on banknifty hourly channel.