HEAD & SHOULDERS PATTERN - FIRST PULLBACK & PROFESSIONAL ENTRY
The Head and Shoulders That Cost Me Money: What I Missed on NVDA and What I Wrote in My SRAD and SOFI Journal
Last month I missed a perfect Head and Shoulders on NVDA. I was watching the Multiple Time Frame chart I showed you in my last post, but I hesitated at the neckline. That hesitation turned a winner into a loss.
So I opened my TradingView journal for SRAD and SOFI and wrote down exactly what I should have done. This guide is that journal entry.
What is Head and Shoulders?
If you are new, the Head and Shoulders is simply the market telling you buyers are exhausted. A strong uptrend goes up, pulls back, tries one more time to make a higher high and fails. That failure is your early warning that sellers are taking over.
The Inverse version is the same story but upside down. After a long downtrend, sellers get exhausted and buyers take over.
The Real Anatomy I Look For
1. Left Shoulder
The first push up in an uptrend with strong volume. Then price pulls back naturally. At this point you cannot call a reversal. For me, the pullback volume must be lower than the push up.
2. The Head
Price breaks above the left shoulder high and makes a new high. But look at the volume - on NVDA last month, the head formed on less volume than the left shoulder. That was the first clue. Sellers then pushed it back down below the left shoulder pullback low. This low area will become our neckline.
3. Right Shoulder
Buyers try one last time to push higher. On SRAD, I saw this fail to even touch the head. It made a lower high on even lower volume. Then sellers stepped in hard and volume increased on the way down.
4. The Neckline
This is the last support for buyers. I draw it by connecting the two pullback lows. I only take the trade seriously if price closes below this line with heavy volume.
The Two Types I Trade
Regular Head and Shoulders - forms at the top, signals bearish reversal. This is what I trade on NVDA and large caps.
Inverse Head and Shoulders - forms at the bottom after a downtrend. I look for this on beaten-down names like SOFI.
The Failed Head and Shoulders That Cost Me Money
Once the neckline breaks down, if price closes back ABOVE the neckline, the breakdown failed.
It fails for two reasons:
1. It appeared inside a monster uptrend. If NVDA was up 40% that month, one small pattern will not reverse it.
2. It formed too fast. A pattern that forms in 5 candles is just noise. A pattern that took 3 weeks to form traps way more buyers. When that long neckline breaks, all those trapped buyers rush to exit.
How I Enter - My 4 Entries
Before I enter: Higher timeframe must be in a downtrend or at clear resistance, and I need volume confirmation.
Entry 1: Tight Range Break at Neckline. Price squeezes into a tight 3-5 candle range at the neckline. I enter short when the low of that tight range breaks. Stop loss goes just above the tight range.
Entry 2: Breakout Test of Neckline. If I miss the collapse, I wait for price to come back up to test the broken neckline. If I see a rejection wick at the neckline, I enter short. Stop goes just above the neckline.
Entry 3: The First Pullback. After the breakdown, price makes a small flag with narrow candles and upper wicks. Volume dries up. I go short on the break of the flag low. Stop above the flag high.
Entry 4: Professional Entry. I wait for left shoulder and head to form. Then I wait for price to rally back towards the head high on low volume. If I get a bearish rejection like shooting star or bearish engulfing near the head, I enter short. I use all 4 methods on my AMERIMONDE TRADING account.
Disclaimer: I am not a financial advisor. Trading stocks, NQ, Gold, and Forex involves substantial risk. This article is for educational purposes only based on my own trades. Please do your own research.
📈 Read More on AmeriMonde Trading:
- What is Support and Resistance: Complete Guide
- Liquidity Hunt: Trap & Reverse — True support vs liquidity grab.
- Where to Place Stop Loss: Smart Money Concept
- Past Performance
Wow, finally a trading blog that doesn't overcomplicate! That header chart caught my eye and the analysis is solid. Waiting for the next post - do you have a journal template for tracking these setups?
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