Forex EUR/JPY

Head and Shoulders pattern on the EUR/JPY 1 hour chart

The Head and Shoulders pattern is a bearish reversal chart pattern, which is formed by three peaks or highs, with the peak in the middle being higher than the two on the sides. The highest peak represents the “head” and the two peaks on the sides are the “shoulders”. The red line that we see crossing the chart is called the “neckline”.

When the price broke below the neckline for the first time on the EUR/JPY chart above, courtesy of the Forex Broker ActivTrades http://www.activtrades.co.uk/, the neckline was broken. The price usually pulls back to the neckline level after the breakdown and bounces back down to complete the pattern.

This time the price is testing the neckline from below, which acts as resistance from where the price bounces back to the downside. Usually, the price travels the same distance from this point down as the distance from the highest peak, meaning the head, to the neckline. That distance is usually projected downwards from the neckline’s pullback to determine a possible target.

As we see from the chart, this completion of a head and shoulders pattern was almost a text book example. The only thing to point out is that the movement to the downside after the price broke the 148.00 level was accelerated by fundamentals and the pair moved more than 100 pips only to test the 147.00 level and bounce right back up another 100 pips. Amazing volatility.

Alexander Londono – Analyst Contributor at ActivTrades.

Disclaimer: Leveraged products carry a high degree of risk to your capital. The thoughts and opinions expressed here are solely those of the writer and do not necessarily reflect the view of ActivTrades Plc. This commentary is for information purposes only and should not be considered as investment advice. The decision to act on any ideas and suggestions presented is at the sole discretion of the reader. ActivTrades PLC is authorized and regulated by the Financial Conduct Authority, FCA registration number 434413. ActivTrades PLC, 1 Thomas More Square, London, E1W 1YN, United Kingdom.

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