Head & Shoulders patterns
It’s a binary strategy which will help you to indicated market trends and take quick decisions for call or put option buying.
To get fair prices on the market you should have an account at a trusted and regulated broker.
Certain shapes, called graphic patterns or models, may appear every now and then on the chart. These figures are harbingers of certain trends formation in the market. Some of these figures may indicate the continuation of the current market trends or trend.
Head & Shoulders pattern formation
For example, if a particular tool grew up in price, this figure is only a period of uncertainty, after which there is a further upward movement. As for other similar patterns, they belong to a reversal and certainly warn the trader that the current trend is likely coming to an end.
The binary options strategy Head and Shoulders which is based on exactly the same reversal pattern, alerts the trader that the market will change soon. In other words the main market movement will change to the opposite direction.
If you look closely at the figure above you can see why this chart pattern has acquired such a name. It consists of a Head – the highest point or extremum and two shoulders which are formed on the left and right sides of the Head.
Formation of the left shoulder occurs during the formation of the next uptrend extremum. After that, the price of the asset in question goes down. Further, the upward trend continues to develop and reaches a new high (the formation of the Head).
After that, the price goes back toward the line of the neck and touches it. In this situation, we can say that the rule of the uptrend formation is broken, since during renewing highs, lows are not rising up, but remain at the same level.
Finally, the right shoulder is formed on the same principle as the left one.
Signal to buy Put option
A signal to buy a Put option appears only after the price overcomes the neckline (which acts as a support level). However, some traders recommend to wait one more touch of the neckline (which, after a top-down break, turned into a resistance level).
Often, during the formation of this pattern, the price tends to go back to the neckline, which appears to be strong enough to break through the support.
After this touch, you can also buy a Put option.
As can be seen above, the use of Head & Shoulders binary option trading strategy can be very profitable. However, there is one important caveat. Most importantly – to identify the formation of the figure on the chart correctly.
Signal to buy Call option
It should also be noted that the Head & Shoulders strategy may herald not only a broken uptrend, but a downward also. In this case, Head & Shoulders binary option trading strategy brings profit from a Call option buying.
As for the pattern, it will be a mirror image of that shown in the figure. At the moment of resistance line, when there is a breakout (mirroring neckline figure will be the first line of resistance), you should buy a Call option.
The Head and Shoulders pattern may not look so perfect, as shown in our examples. Its shoulders may not be on the same level, but in order to make this binary options trading strategy working, it is important to observe the basic conditions for the formation of the figure on the chart.