Expert Warnings for Head and Shoulders Bottom

1. Prior Trend: greatly, the institution of a prior trend is needed for this to be considered as a reversal model. Without the history of an old down movement to reverse. A head and shoulders bottom cannot be confirmed.

2. Left Shoulder: during this downturn constitution, the left shoulder forms a trough and defines the new reply low in the current trend. Once formed, the likely advance proceeds and through it completes the left shoulder pattern (1). This high is generally below the long term down trend ensuring its movement downwards.

4. Head: at the height of the left shoulder high, the decline commences that goes above the previous low and creates the low point of the head. Since making the new low, the new advance forms the second point and creates the neckline (2).

5. Right Shoulder: the retreat from the high of the head (neckline), it begins to form the right shoulder. This low is generally always higher than the head and usually at the same levels of the left shoulder. The forward advance higher from the lows breaks the neckline, the completion of the head and shoulders bottom pattern is completed.

6. Neckline: the neckline produces by merely connecting the two response highs (1 and 2). The reaction high 1 completes the formation of the left shoulder and the beginning of the head. The reaction high 2 completes the formation of the head and the development of the right shoulder. Depending on the association of the two reply highs the neckline can slope up, down or be equal in appearance. The slope of the neckline will affect the patterns degree of sureness in the stock; an increasing slope indicates a more assertive mood to the market

7. Volume: in a head and shoulders bottom figure, the level of volume has more concern than in a head and shoulders top. The shape requires an increase of volume to support the breakout.

A. The volume levels in the first half of the pattern are not as important in comparison to the second half. The level of volume in the left shoulder declines at an intense level and solid support. The selling usually continues during the fall that forms the low of the head. As the pattern evolves the volume generally expands at the beginning of the right shoulder, these traders are getting in early to trade this higher.

B. The developing advance from it lows would generally show and increase in volume, as the reaction high evolves, this then forms the second neckline. The right shoulder's decline in price is complemented with weak volume. It is quite normal to have advantage takers crept into the market to lock in profits and you need to assess the volume in contrast with the profit taking and the heavy selling pressure that could eventuate. The important factor concerning volume occurs from the low of the right shoulder. If a breakout was to happen and be valid, there needs to be an extension of volume during the rise in the stock price.

8. Neckline: The head and shoulders bottom pattern is not completed and the down trend is not reversed until the neckline resistance is breached. There must be a convincing expansion of volume for this to be defined.

9. Impedance Turned Support: while the resistance levels are broken it is quite normal for the same resistance to produce into support, quite often the share price will return to the resistance level, giving traders a second opportunity to enter a trade.

10. Price Target: Once the neckline resistance is broken, to project the possible advance, you would calculate the following. You measure the distance from the neck line and to the bottom of the head. You then take the measurement and add it to the neckline to reach the latest price target in the future.