Head-and-shoulders trading has been around since before 1930

[pssonice]

http://articles.moneycentral.msn.com/Investing/PowerTools/DontBetTheRentOnTechnicalAnalysis.aspx

The pattern consists of three peaks, the highest being in the middle. A horizontal line -- the "neckline" -- is drawn to connect the troughs between the shoulders and the heads. The crossing of the neckline is supposed to signal that prices will continue down away from the head. An inverted pattern is read as bullish.
45 years of testing
We'll start by saying that we avoid all vaguely defined "technical" indicators requiring visual evaluation by a gifted interpreter. Moreover, in 45 years of trading, Vic and his staff members have tested every indicator to which value is ascribed. If it works, he would be using it. Head-and-shoulders trading is a trend-following strategy. We believe that any wealth that accrued to Miss X as a result of trading this pattern -- and we do congratulate her for it -- was a lucky event, not a sure indicator of future success.

 

[pssonice]

The "Head-and-Shoulders" pattern is believed to be one of the most reliable trend-

-reversal patterns.

http://www.tradetrek.com/education/tech_tra/tech_trading_strategy03.asp

The strategy indicated by the "Head-and-Shoulders" pattern is to short-sell the stock as the price drops down the second shoulder, especially if the volume also goes up. Then one can hold the position until the price drops all the way down to the level of significant supports and consolidation. This signal also indicates that one should cut loss if the price rises above the tip of the head. A less-risky stop- loss strategy is to cut losses if the price goes back up the top of the second shoulder.

 

[pssonice]

Trading Ideas from Classic Patterns, SAMPLE ONLY

http://www.choicetrade.com/reg_sample.html

 

[pssonice]

Volume is usually highest during the left shoulder formation !!! please read this !

http://www.trade10.com/Head_Shoulders.html

1.) As prices slip back, volume recedes, when a second rally forms, volume is again high, the head of the pattern is formed when surging prices and volumes begin to ease and fall back again

2.) Price projections are identified by taking the point or percent change (dependent on the price of the security) between the Head and the Neckline

3.)Then, that amount is projecting from the point of penetration of the neckline in the direction of the penetration after formation of the right shoulder.

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Sometimes head and shoulders patterns can be more apparent on indicators than in price action. The pattern is valid when it occurs on an indicator but does not mean a reversal of the price trend will necessarily occur. Momentum indicators like the MACD shown below can diverge from price for some time and so it is strongly recommended to wait for price reversal to occur before making trading decisions.
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[pssonice]

INTRADAY: Head&Shoulders is one of the most reliable and profitable types of setups

http://www.morpheustrading.com/WagnerWeekly/Sept_23.html

Of the various types of chart patterns that we trade, the Head and Shoulders is one of the most reliable and profitable types of setups. Since several of the major market indices are currently in the process of completing a Head and Shoulders pattern on their daily charts, we figured this is an ideal time to discuss how to identify the pattern and capitalize on it. As such, we postponed our weekly ETF analysis in order to bring you this timely educational article, but will resume with our weekly ETF analysis and discussion next week.

+++ It is important to realize that the amount of time it takes an index or ETF to complete the breakdown of the H&S pattern is largely dependent on the time frame of which the setup occurs.
++++For example, a H&S pattern that sets up on a 5-minute intraday chart will usually follow through and complete the selloff within a few hours.
+++However, if you see a H&S on a sixty-minute chart, it will probably take several days or even a week to complete the predicted drop. A H&S on a daily chart will usually take weeks or even months to follow-through. Therefore, if you see a H&S pattern on a daily chart, it's typically not as easy as blindly going short unless you are the type of trader who can stomach volatility. If you short a H&S on a daily chart, you will probably stop yourself out unless you allow the setup a significant amount of time and price volatility before it follows-through. Because of this, we prefer to trade H&S patterns that occur on shorter time frames such as 15 or 60 minute charts.

 

[pssonice]

a H&S pattern that sets up on a 5-minute intraday chart will usually follow through

and complete the selloff within a few hours.

It is important to realize that the amount of time it takes an index or ETF to complete the breakdown of the H&S pattern is largely dependent on the time frame of which the setup occurs. For example, a H&S pattern that sets up on a 5-minute intraday chart will usually follow through and complete the selloff within a few hours.

 

[pssonice]

confirmation is a key feature in technical analysis ! always ask yourself :

"If it looks like a breakdown and acts like a breakdown, then technically it is a breakdown."
vice versa ...

 

[pssonice]

A breakout through a trend line is used TOGETHER with a reversal pattern

for monitoring price level- and timing-related signals.

http://www.tradecision.com/product/technical_analysis/reversal_patterns.htm

+++ The longer the time required for the formation of a pattern and the greater the price fluctuations within it are, the more substantial the forthcoming price movement is likely to be. The time frame is, normally, from several days to several months. Intraday patterns are much less reliable.

+++ Reversal patterns offer some of the most important opportunities for entering a market with a good profit potential. They usually represent fundamental changes in the underlying character of a particular market, and often go on to yield big moves.

However, a market top or bottom is often difficult to identify. It is even more difficult to choose the appropriate entry and exit points. One of the related problems is distinguishing between the actual change in a trend and a mere congestive phase in the middle of a move. In most cases, it is advisable to wait for prices to actually confirm a trend reversal by developing one of these well-tested and reliable reversal patterns. The actual buy or sell signals are based on a breakout in the direction of the new trend.

The most popular Reversal Patterns include: head and shoulders, double tops and bottoms, and V-Top.