Head and Shoulders pattern – high probability setups

4 min read November 5, 2020
Richard Fetyko

Head and Shoulders pattern - high probability setups

Today, we would like to demonstrate a unique functionality of the altFINS platform: automated chart patterns recognition.  New patterns are refreshed every 15 mins.

altFINS  automatically detects Emerging and Completed trading chart patterns, and you can use this valuable information to your trading advantage.

Let’s explain how exactly you can use this tool to your benefit with examples.

Head and Shoulders pattern is believed to be one of the most reliable trend reversal patterns, indicating a change in trend from bullish to bearish.

An Emerging Head and Shoulders pattern on DASH/ USDT was identified on Nov 1 at 4:00 UTC (see chart below). An Emerging pattern is a pattern that has not yet completed, but enough information was revealed to detect an ongoing formation of a pattern.

In this example, both shoulders and head were formed, which means that we can draw a neck-line. Most traders would wait until break of the neck-line for pattern completion before trade entry, but we will show you that you can trade this even before that, and with higher win rates of over 75%!



In order for Head & Shoulders pattern to “Complete”, we need to break the neck-line, which means that we have to get there first. This means price movement from ~69USD to ~64USD on DASH.

Trading Emerging pattern means that you can open your trade sooner, instead of waiting whether neck-line gets broken or not. In the graph below, we can see what actually happened with DASH/USDT after we received a signal (“Pattern recognized”).



As you can see, the price went from ~69USD (from the moment altFINS recognized the pattern) to ~62USD, so a nice profit of 10% could be made. This pattern is not yet considered “Completed“, because neck-line was not broken yet, but we illustrated that you can make money even before a pattern is Completed.

Next, we will show you an example of another Head & Shoulders Emerging pattern, which has not been played out yet (i.e. it’s a live signal). altFINS detected this H&S pattern on BCH/ USDT on November 4 at 0:00 UTC (see signal below). Indicated movement from ~239USD to ~195USD, possible 18.4% to be made, provided this emerging pattern plays out.


We can look how the price action of BCH/ USDT looks now. We can see that coin is trading ~250USD and this emerging pattern has not been invalidated. Remember, price does not go in straight-line, so there are bumps in the road and not all patterns, whether emerging or completed will always play out.



Risk management – Stop Loss and trade size. In all of these setups, traders should use Stop Loss orders to manage their downside risk, in case the trade goes against us, as it often will. Trading is about probabilities and even though these setups have a high win rate, one must be prepared to minimize losses on the trades that go bust. If Stop Loss order types are not supported by they exchange, at least set up a price alert (see video). Also, trade size should be such that you never risk losing more than 2% of your total equity. Keeping the trade size small allows the trader to setup a wider Stop Loss, which gives the trade more room and time to complete with success. Setting Stop Loss levels too tight can often result in getting knocked out of a trade prematurely.

Disclaimer: This content is for informational purposes only, you should not construe any such information or other material as investment, financial, or other advice. There are risks associated with investing in cryptocurrencies. Loss of principal is possible.