just want to coment that I think the "Head and shoulder" pattern is the most over used and misused chart pattern out there

Yep

On this forum it certainly is.

I agree!

To be used correctly -- IMO -- one should look to play it BOTH ways...especially if it fails!!!

1 -- A H&S that breaks the neckline should be traded -- but a violation of that neckline is a signal to get out of the trade and look to go back long -- as with number 2 below.

2 -- A H&S that fails to break the neckline -- or a retest of the neckline after it is first broken -- and then goes on to take out the right shoulder is a very often a HUGE opportunity for catching a big move in a continuation of the original trend.

In general any formation that fails is OFTEN a much stronger signal than the "expected" move one sees as it forms....most people just get out when these formations fail, sit buy and miss the bigger move.

From what I have observed over the years, most geometric and/or technical patterns that yield measuring objectives are misused because most don't even consider the key characteristic of all of these patterns....volume.

Volume of a price structure is very important in truly identifying any or all price pattern analysis, and seperate what looks "visual" from those where actual trading positions can and should be applied.

Fib

Here is an example of a FAILED H&S:
[img]http://stockcharts.com/def/servlet/SharpChartv05.ServletDriver?chart=$indu,uu[e,a]daclyyay[dd][pb50!b200][vc60][iub14!la12,26,9][j33565023,y]&r=4890.png[/img]

I am taking the opportunity to zoom in on the price area in which RD posted previously as to provide an example of how important volume is in any or all price pattern analysis.

The key volume characteristic of a head and shoulders pattern is that the volume that accompanies such a price structure should have above average volume on the left shoulder, as much if not more when forming the head, and then lesser than average volume on any construction of the right shoulder. The other key element is that the formation of the head must have greater volume than that of any low point from where the left shoulder ends and the head begins.

As represented by the Dow chart shown below, the volume characteristics of the right shoulder may have been one idea, but the "head" of the pattern was barely able to maintain greater than average volume, and never took out the climatic volume low of late November.

Because of this, the pattern being traced out was more than likely a consolidation pattern, which eventually did lead to the smart advance that followed in the December period.

Fib

[img]http://stockcharts.com/def/servlet/SharpChartv05.ServletDriver?chart=$indu,uu[w,a]dahayyay[d20031001,20031201][pc200][vc60][i]&r=5696.png[/img]

Weclome back, an excellent post.

I've heard or read or both, that the DOUBLE BOTTOM is one of , if not the most, reliable of indicators. Anyone can confirm and elaborate on this?

From what I've seen the problem is consistancy of the individual. But maybe I'm projecting there.

Perhaps those of you that feel the pattern is misused, should post specific examples of triggered patterns that acutally have failed, so we know what you are talking about. I'm lost. I wasn't here in November so I don't know why that example is being used, the right shoulder never broke down, and the pattern never triggered at the neckline, so it really never existed to begin with. I consider any reversal pattern as potential until it is actually triggers, and highly suspect until it is confirmed using the 3% price rule. I short right shoulder areas all the time, and set tight stops becuase of the high risk.

Volume is relative and highly subjective. I have seen HnS patterns with text book volume patterns that ended up failing after they confirmed, and I have seen HnS patterns that had highly suspect volume patterns go on to complete their measurments. The small Hns top that triggered in March sure has wreacked havoc with this market, in spite of being sloppy and imperfect volume, it made it's downside measurment on 3/22/2004 @10,045

I like H&S patterns. Use them all the time and find them to e very accurate tools for many different purposes.
cheers

some good stuff here!

As for double bottoms (and tops) -- or "M"s and "W"s, I do feel they are some of the best.

To me the signal is ripe when price takes out the middle of the "W" or "M" and the exit is at the same point. Low risk trading at it's best...IMO, that is!

This is very good work, folks.

I'm going to move this to the IU Board in a couple of days to archive it.

Valuable reminders are, well, valuable!

Mark

[img]http://stockcharts.com/def/servlet/SharpChartv05.ServletDriver?chart=dna,uu[e,a]dhclyyay[dd][pc5!c15][vc60][iub14!ll14][j33670360,y]&r=5682.gif[/img]

Hi Saltlake

Though a bit long in the tooth as far as the time its taken to trace out the topping pattern (no less the spike top), it would appear that DNA has all of the characteristics of a head and shoulders topping formation (with great shoulder balance to the structure) - and with the present position of the RSI, it could be a quick move down to the 40 level short term, on the way to the ultimate 35 objective.

Nice find.

I hope it trades well for you.

Fib

I will bet you if I flip a coin and plot that on a chart, I will get a head and shoulder pattern, a wedge, triangle formation etc......

So many people know about H&S patterns, that they are often a great fade! The key element is volume (which the last chart doesn't even show, and sentiment. (If you are the only one to see it, it might have a chance)

Take a look again Bliss - there is volume on the chart - and it's consistent to what a head and shoulders pattern should maintain to be traded as such.

As far as sentiment is concerned, that's an interesting idea, though it's not technically needed as the price action, along with the proper volume considerations, does tend to take this into account in a round about way (and why volume is so important with this or any other structural price pattern).

And as far as too many people stirring the soup, that's always the one thing that every technician should consider for as more and more traders recongnize the same pattern over time, the less likely it will actually pan out because they're all waiting and trading the same technical structure which usually causes failure of the pattern...just like everything else in this business, especially Elliott.

Fib

Hawkeye, I counted six head and shoulder patterns on your chart.....

Ain't that nice. That must mean they are 6 times as potent? I see 3 active patterns. Why don't you post a chart and show me the other 3? Don't include the ones that have formed and not confirmed, and don't include the ones that have failed and canceled.

This one, as well as more then twenty others, was posted on the cs message board yesterday. The target has been exceeded today.

here is the updated ko chart with latest data now.

here is another that was posted of pg. the last stick has some bad data for the open but the close is correct.