Head and shoulder chart pattern are considered to be the most reliable and profitable bearish reversal chart pattern trading technique. This pattern is usually formed after a strong upward rally in the price. Professional traders consider this pattern as the golden option for entering into the bearish trend reversal.
Let’s see how the professional use the head and shoulder chart pattern in binary option.
There are three key elements in head and shoulder chart pattern. When the price rises to a certain extent and falls back to the support level the left shoulder of the pattern is formed. From that support level, the price again rallies upward with a strong bullish momentum making a new high in the pair. The new high is said to be the head of the pattern. The price then again sharply drops at the key support level. From that key support level, the price again tries for a bullish rally but ultimately fails to break the previous high. The last high is the right shoulder which completes the pattern. From that level, price drops sharply and breaks the key support level which is often known as the neckline. Professional options traders execute their put option after the valid break of the neckline.
In the above figure, the price formed a nice head and shoulder chart pattern. Expert option traders wait patiently after the formation of the right shoulder for the bearish breakout. As soon as the neckline is breached, experienced options traders go for put option in the market. This type of instant execution is often referred as aggressive trading by many professionals. So, if you prefer the conservative method you should wait for a minor retracement in the price after the bearish breakout. Almost 60% of the time price retraces back to the neckline which turned into resistance. Professional options traders set their strike price just near the neckline after the bearish breakout. Some advanced professional also goes the no touch option while trading the head and shoulder pattern. Most of the time price never retraces back beyond the neckline. So they consider the above area of the neckline region as no touch option zone and make a decent profit. As professional options traders, you must be very careful while trading the head and shoulder pattern. Under no circumstances, you should take a huge risk even though the strategy is extremely reliable and profitable. Successful option traders know that money management is the key to success in this industry.