1. The script identifies potential Head and Shoulders patterns by searching for specific pivot highs and pivot lows in the price data.
2. It checks for the presence of a left shoulder, head, and right shoulder based on the conditions defined in the script.
3. If a valid Head and Shoulders pattern is found, the script plots lines and labels on the chart to visualize the pattern.
4. The script also identifies Inverted Head and Shoulders patterns using similar logic but with different conditions.
5. It plots lines and labels for the Inverted Head and Shoulders pattern.
6. The script generates short and long conditions based on the patterns. Short conditions trigger when the close price crosses below the neck level of a Head and Shoulders pattern, while long conditions trigger when the close price crosses above the neck level of an Inverted Head and Shoulders pattern.
7. It plots sell and buy signal shapes on the chart when the short and long conditions are met, respectively.
8. The script can also trigger alerts to notify the user when a valid Head and Shoulders or Inverted Head and Shoulders pattern is detected.
9. The script provides visual cues on the chart to help users identify potential trading opportunities.
10. The logic and parameters of the script can be modified by the user to customize the behavior and adapt it to different trading strategies.
How Users Can Make Profit Using This Script:
1. Identify potential short-selling opportunities: When a valid Head and Shoulders pattern is detected and a short condition is met, it indicates a potential trend reversal. Traders can consider opening short positions to profit from a downward price movement.
2. Identify potential long-buying opportunities: When a valid Inverted Head and Shoulders pattern is detected and a long condition is met, it suggests a potential trend reversal. Traders can consider opening long positions to profit from an upward price movement.
3. Combine with additional analysis: Users can utilize this script as a tool in their overall trading strategy. They can combine the signals generated by the script with other technical indicators, fundamental analysis, or market sentiment to make more informed trading decisions.
4. Define appropriate entry and exit points: Traders can use the lines and labels plotted by the script to determine entry and exit points for their trades. For example, they may choose to enter a short position after the price crosses below the neck level and exit when the price reaches a predetermined target or when the pattern is invalidated.
5. Set risk management measures: It is important for users to implement proper risk management strategies when trading based on the script's signals. They should define stop-loss orders to limit potential losses if the trade goes against them and consider setting profit targets to secure profits when the trade moves in their favor.
In true TradingView spirit, the author of this script has published it open-source, so traders can understand and verify it. Cheers to the author! You may use it for free, but reuse of this code in a publication is governed by House Rules. You can favorite it to use it on a chart.