Head and shoulders pattern and how to apply it in cryptocurrency trading?

EducationAugust 25, 2021

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The head and shoulders pattern is a price reversal pattern that is used a lot in forex trading. And now, used by coin traders in the cryptocurrency market. What is the head and shoulders pattern? How is it applied in cryptocurrency trading? Let’s find out in the article below.

What is the head and shoulders pattern?

As noted above, this is a confirmation signal of a downtrend reversal after a previous strong bullish cycle.

  • This pattern is usually made up of 3 peaks with a higher peak in the middle – called the top.
  • And the two lower peaks on the two sides are called the left shoulder and the right shoulder. The right shoulder can be higher than the left shoulder but not higher than the head.
  • The line connecting the two bottoms is called the neckline.
  • The pattern is officially completed after the price cuts the neckline down. That is when traders confirm the signal to enter a sell order.

It is also common to use a head and shoulders reversal pattern to confirm the end of a downtrend to move into an uptrend.

Head and shoulders pattern

How to apply the head and shoulders pattern to take profits in cryptocurrency trading

Once the model is complete, you need to prepare to sell the coins you hold.

  • If you do not hold the coin, you should stay out, wait for another opportunity or find another coin.
  • If you hold that coin, you should sell it to make a profit.

* See more: The complete guide Binance from a to z

Method 1: Enter a sell order after the breakout point is created

When trading coins, if you form a head and shoulders pattern, you will likely have to sell your coins to preserve your profits.

Everyone wants to sell at the Head – the highest point of the head and shoulders pattern. However, when the price is initially, no one knows which price will go up after that or in which direction. So you can’t know the starting point to sell and profit at this point.

If the price has not completed the breakout point, the head and shoulders pattern has not been confirmed. Thus, it is possible that the uptrend is not over yet. Therefore, you should not sell taking profit when the pattern is not completed.

And when the pattern has completed the breakout point, it means that the uptrend has officially turned to the downtrend. This is when you place a sell order.

In this way, you will sell to take profit for the coin you are holding. But because the price has to wait for the price to cross the neckline to confirm the completed pattern, the entry point is usually below the breakout point. Therefore, the position of this trade is usually quite low, so the profit is not high. However, you will not miss the opportunity to take profits.

Method 1: Enter a sell order at the retest price at the neckline.

If you find the entry point of way 1 is too low, it affects your profit. As shown in the picture, you can wait for the price to retest at point 2 to enter an order. After the price completes the pattern, the price retests at the neckline before falling further. This is the time to enter the order in a 2nd way.

However, with the second way, it is possible that the price after the breakout will not return to retest but decrease deeply. When in this situation, if you haven’t sold your holdings in time, you have lost the opportunity to take profits. And forced to sell at a lower price. Therefore, this is a risk you may face when choosing this option.

How to enter a cryptocurrency trading order

An inverted head and shoulders pattern signifies the end of a downtrend and a transition to an uptrend. Therefore, you can apply to enter a cryptocurrency buy order.

  • After the price breaks the neckline from below, you can enter a buy order.
  • Take profit from the entry point by the distance from the starting point to the neckline.
  • Stop hole placed at the right shoulder point.


The head and shoulders pattern in cryptocurrency trading, like other technical analysis methods, is always probabilistic. Therefore, you must set a stop loss when trading coins. In particular, in cryptocurrency trading, you do not use short selling orders and use margin to ensure the safety of your investment account.


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