- The "head and shoulder"
formation is a very common reversal
formation that you probably hear about all the time. You've probably
seen it on CNBC or read about it in a book about technical analysis.
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- What is it?
- The head and shoulder formation is simply
a change in trend direction. It can appear as shown in these
charts or in reverse with the head at the bottom of two shoulders.
- This is a 3 minute line chart of the NASDAQ
100 index. This is one of the charts I use on my trading page.
The blue line is the index, the gold line is the %K, the purple
dots is the parabolic and the lower lines form a type of stochastic
indicator. The index was making new highs that created an up
trend. If you draw a trend line across the lower part of the
retracements under the left shoulder, an intersection point would
occur under the right side of the head. If the index had bounced
off this point then the up trend would have remained valid, but
it broke through the point indicating a likely change in trend
direction. (You can learn about trends in a previous newsletter).
The right shoulder formed when there was not enough buying to
make a new high. The movement to the downside at the right shoulder
created a lower high and a new down trend forming the head and
shoulders.
-
- It's easy to show what has happened in the past to create a
head and shoulders formation. This type of education has value,
but when it comes to seeing the head and shoulders form in real
time, this information is not helpful. This is my criticism of
most training courses. They show you this type of "after
the fact" learning that has little practical use. Princeton's
TradeTutor courses are different. They show you how to recognize
these reversal formations as they unfold, so you can anticipate
them happening and take advantage of them from the head section
rather than all the way down after the right shoulder has formed.
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- The chart to the right is a one minute candlestick chart
of the same time period as the chart above. The blue line is
the %K, the red line is the RSI, and the yellow
line is a moving average. The yellow and green lines below form
a stochastic indicator. It is much more difficult to see the
head and shoulder reversal formation in this chart especially
as it is unfolding, but we use the same trending principles.
Entering a short trade immediately after the right shoulder forms
is difficult because it appears that there is no up tick for
3 long red candles. One of the techniques you learn about in
Princeton's TradeTutor courses is to measure the height between
retracements during a trend and then anticipate the change in
trend followed by entering a short sell order just below the
highest candle at the head. This process yields the largest profit
possible for the particular trade. The problem with standard
technical analysis that is taught by practically every other
course is that it teaches you to wait until the formation has
finished forming. In the chart to the right, this would be somewhere
during the 2 green candles after the 3 red down candles after
the formation of the right shoulder. This causes the trader to
lose too much of the trade profit. There is also an increased
risk of being stopped out of the trade, although this chart doesn't
show it. People trade to make a profit. Princeton's TradeTutor
courses teach a modified style of technical analysis for, what
I call, precision trading to maximize profitability for each
trade.
-
- After some experience using Princeton's TradeTutor techniques, you would
easily be able to recognize the head and shoulder pattern as
it was unfolding in
 this
3 minute line chart of the NDX (NASDAQ 100). Notice how the distance
between the left shoulder and the head has tightened up. Also,
notice how the %K indicator shot down just as the head formed.
Look at the stochastic crossover being above the 80 line. Using
this information along with other charts and indicators gives
a very reliable trade entry point. Charting the NDX is very important
because most stocks follow the index. You want a confirmation
between the direction of the index and the stock you are trading
to increase the validity of the trade.
-
- I hope my instructions are not too difficult to follow.
The TradeTutor uses audio and video. In the TradeTutor, I would
be explaining to you verbally what is in writing and pointing
to the various parts of the chart using the mouse pointer to
show you exactly how it all works. Needless to say learning from
Princeton's TradeTutor courses is very simple because the information
you need is easy to understand and absorb. As in any profession,
some concepts are tough to understand, so any method that improves
comprehension is always appreciated.
-
- Learning to trade is no simple task due to the skills and education
necessary. If you think that you've learned enough and are ready
to trade I hate to rain on your parade, but you are trying to
take money from the professionals and they don't like to give
their money up. How would you do as a Green Bay Packers quarterback
after just a few lessons. I know I would get squashed. For some
reason people don't think they will get squashed in stock trading,
but time and time again people lose their money; that's how the
professionals make a living. You know the old saying, "
you can lead a horse to the water, but you can't make him drink".
Well, I'm leading you to the training courses you need, but only
you can drink.
-
- There are 2 main reasons why I take the time to publish this newsletter.
The first is to share my knowledge with fellow traders because
I love profitable trading and the second is to introduce people
to Princeton's TradeTutor courses. I put an incredible amount
of time and energy into developing
the TradeTutor to educate traders in our trading room. At less
than $1000. it is a bargain and if you go to Princeton's TradeTutor
site you will find a way to save $100.00. click
here to check it out
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- Preventing
just one serious mistake can easily make the TradeTutor worth
more than twice it's price! And save you from serious Emotional
Damage.
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- We have revised our training
programs to be the latest and greatest and for the first time
ever are making them available to everyone on a set of CD's.
This is the exact same training we offered in our trading room
for $2000+. Here is another plus. We are offering a FREE CD that contains the first lesson from each course.
How many times have you taken a course because it sounded so
good only to discover that it was not as advertised? You forget
to send it back and time runs out! Well, that can't happen with
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