SBI: Head & Shoulder

Nov 24, 2023

Stock has formed a Head and shoulder pattern who se neckline is identified at 553. A sustained move below 553 shall bring the stock down towards the measured target zone of 493-95


THEORY:

This pattern forms after an extensive upside rally. It consists of a left shoulder, a head, and a right shoulder. The left shoulder is formed after a big bull rally in which the volumes are quite large.

At the end of the left shoulder, a minor correction takes place on the downside which happens on the low volumes comparatively the starting of the left shoulder. After this, again an up move can be seen on large volumes forming a head whose top is above the left shoulder following a correction on lower volumes & completing the head.

The completion of the head must be below the top of the left shoulder. If the prices fall down below the low of the left shoulder then too this pattern remains intact. In the end, the right shoulder is formed usually on smaller volumes comparatively the previous two rallies.

Now if you connect the bottoms of the left shoulder, head & the right shoulder there will be a formation of the ‘Neckline‘. This line will act as a decision line. If the prices break this neckline & give closing below the line, this will be the confirmation of the breakdown of the H&S pattern.

However, it has been noticed that after breaking of the neckline the prices again attracted towards this neckline. We say this phenomenon as a retest of the neckline which will add some more confidence while trading this pattern.

After retesting if the prices again come down this will be the final confirmation of the downside movement of the price as shown below.

The bookish target of this pattern is taken as the vertical price range from the top of the head to the neckline & the bookish Stop loss should be the top of the right shoulder. However this stop loss can be big, so it is advised to keep a stop loss of 4-5% of the price range above the neckline.

Dec 4, 2023

Order cancelled