This is the second part of patterns and fifth lesson of trading series. In this post we will be learning about round bottom/top and head and shoulders pattern. Both patterns are widely used by traders and are highly successful.

Round bottom/top

You can see round bottom in chart below, round bottom is a bullish pattern.

Round bottom forms a rounding pattern during a strong downtrend. Round bottom shows selling pressure is slowing, buying and selling pressure got equal and now buying pressure is exceeding selling pressure, which indicates change in trend. Round bottom is a slow moving pattern yet it is very strong. If the base of round bottom is in strong support, the probability of successful trade will increase.

Round top works exactly like round bottom but in opposite direction.

Head and shoulders

Head and shoulders is a bearish pattern.

In head and shoulder pattern, price goes up, returns to a base line, goes up higher again and returns to same base and in third time price price goes down more. It is because head and shoulders proves bulls are getting weaker, they are trying but bears are stronger to push the price back down.

Inverse head and shoulders is bullish signal and is exactly opposite to head and shoulders.

Trading course series - #1 - Introduction

Trading course series - #2 - Risk management

Trading course series - #3 - Risk reward ratio

Trading course series - #4 - Patterns(1)