As a starting point, an image is given in the first post. The text in the image contains an explanation of the relationship between risk and reward in financial markets. The text notes that spotting market bottoms is generally easier and less costly than catching market tops. However, while challenging, catching patterns at market tops is worth the effort, as prices fall faster than they rise. Therefore, it is stated that an investor can make more money faster and more by taking a short position in a bear market than by taking a long position in a bull market. The text also emphasizes that everything in life is a balance between risk and reward, and that greater risks are compensated by greater rewards and vice versa. It is concluded that capturing the hills is difficult, but when done, the effort is worth it.
In the second post, attention is drawn to a basic data that most people do not use but is important, namely transaction volume. Trading volume shows how much the financial instrument has been bought and sold in a certain time period and plays an important role in confirming the H&S pattern.
Efloud states that when drawing the H&S formation, people should avoid drawing this formation based on irrelevant points. Instead, he states that it is necessary to take into account trading volume and other simple rules to correctly define the formation and leaves the images below.
The graph in the second image has three peaks called the left shoulder, head and right shoulder. Of these peaks, the head is located higher than both shoulders, which is a typical feature of the Head and Shoulders formation.
Neckline is a line drawn from the bottom of the left shoulder to the bottom of the head and then to the bottom of the right shoulder, and is considered the breaking point of this formation. The arrow in the picture shows a "return move" in which prices decline from the top of the high and return to the neckline. It is stated that this movement is an expected movement after the completion of the formation, and with the expression "on schedule" it is emphasized that this return occurred within the expected time frame.
These types of technical analysis patterns help traders detect a possible trend change in the market and often indicate that an uptrend may end and a downtrend may begin. When the pattern is identified and used correctly, it can provide market participants with useful information regarding buying and selling decisions.
In the third image, there is a summary of the basic components of the "Head and Shoulders Top" formation. This summary explains step by step how the pattern is formed:
âFirst of all, there must be an uptrend.
âThere should be a retreat to point B with the left shoulder (point A) formed by more intense trading volume, followed by a correction movement (corrective bottom).
âA rally to new highs should occur with lighter trading volume, but this should occur at point C.
âThere must be a decline falling below the previous peak (point A) and approaching the low of the previous reaction (point D).
âA third rally with significantly lower trading volume (point E) should fail to reach the top of the top (point C).
âA closure should occur below the neckline.
âA move back to the neckline (G point) should be made and then new lows should be seen.
The next post describes the "Inverse Head and Shoulders" formation, which is another formation used in technical analysis. This pattern is the opposite of the "Top Head and Shoulders" pattern and usually indicates that a downtrend may end and an uptrend may begin. The word "inverse" in its naming means that the formation visually appears as a mirror of the normal Head and Shoulders formation; In other words, the formation has a reverse appearance on the chart.
The tweet states that if a person fully understands the normal Head and Shoulders formation, they can also understand the Reverse Head and Shoulders formation. This means that both formations are based on similar principles and only their directions are different. The main difference between the two formations is the changes in trading volume and the appearance of the formation. The inverse Head and Shoulders formation is characterized by a pattern of lows, while the normal Head and Shoulders is characterized by highs. The last sentence of the text emphasizes that this concept is not difficult to grasp.
The image used in this tweet shows an example of the "Inverse Head and Shoulders" formation. This formation is considered in technical analysis as a signal of the end of a downtrend and a return to an uptrend, and as its name suggests, it is the opposite of the classic "Head and Shoulders" formation.
The features of the formation can be listed as follows:
âLeft Shoulder: It begins with an upward move at the end of the downtrend and is followed by a correction (pullback) move.
âHead: It occurs when prices, which fall to a lower level after the left shoulder, react with a larger rise. At this point, it is observed that the transaction volume is more intense.
âRight Shoulder: It is a bottom point that comes after the head and is usually not as low as the head. During the formation of the right shoulder, trading volume is generally not as intense as the left shoulder or head.
âNeckline: It is a line drawn from the top of the left shoulder to the top of the head and from there to the top of the right shoulder. This line is a critical level that determines whether the formation is completed or not.
âTrading Volume: In the Inverted Head and Shoulders formation, it has been stated that the trading volume increases in the region where the head is formed and there is an explosion in the trading volume when the neckline is broken.
âReturn Move: After the neckline is broken, prices are expected to return to this line and then continue with an upward movement. A reversal move is more common at the lower points of the formation.
These features explained in the picture are important details for the recognition and interpretation of the inverse Head and Shoulders formation. Defining the formation correctly and considering factors such as transaction volume can give investors important clues about buying and selling decisions.
In the next post, he talks about the "complex Head and Shoulders" formation, which is less common in technical analysis, but when encountered, you can achieve success when used effectively. âComplex Head and Shouldersâ may refer to a version of the standard Head and Shoulders pattern with more variation and irregularity. Such formations may feature a greater number of shoulders or more irregular peaks and troughs, while maintaining the typical three-peak (two shoulders and a head) structure.
As noted in the tweet, although this pattern is not common in the market, it can present valuable trading opportunities when recognized by traders and interpreted correctly. Recognizing such complex patterns and learning how to use them can help investors and traders improve their technical analysis skills and gain an advantage in the market.
The first image used in the post explains the tactics used for the "Head and Shoulders Bottom" formation. The image shows a version of the Head and Shoulders pattern, which is a reversal pattern in technical analysis. This pattern usually indicates that a downtrend has ended and a potential uptrend may begin.
Details are as follows:
Point A (Left Shoulder): The first point where the downtrend turns into an uptrend.
Point B (Head): The point where prices rise after the left shoulder and fall to a lower level.
Point C: The point where prices decline again after the head and reach the same level as the left shoulder.
Point D (Right Shoulder): The point where prices rise from point C but fail to reach the head level.
Point E: Completion phase of the right shoulder.
Support Line: The support level where prices retreat between the left shoulder and the head.
Line Number (1): Represents the short-term downtrend line, and breaking this line offers early market entry opportunities.
The text states that technical traders can start opening long positions while the right shoulder (E) is still forming. A pullback from one-half to two-thirds of the rally from C to D, a drop to the level of the left shoulder (point A), or a break of the short-term downtrend line (line 1) provide early opportunities for entry into the market. More positions can be added during the break of the neckline or the move back to the neckline.
The text in the second image added to the post talks about potential buying strategies in the "Head and Shoulders" formation used in technical analysis. Here is a detailed explanation of the text:
âSome investors, after measuring the distance of the rally starting from the bottom (point C to point D), prefer to buy when this rally makes a retracement of 50% or 66%.
âOther traders draw a tight downward trend line throughout the decline from point D to point E and buy at the first upward break of this trend line.
âBecause the patterns have a reasonable symmetry, some traders prefer to buy as the right shoulder (point E) approaches the bottom of the left shoulder (point A). During the formation of the right shoulder, many investors make purchases in anticipation of the prospect.
âIf the initial long position (long probe) turns out to be profitable, additional positions can be opened during the actual break of the neckline or the movement back to the neckline after the break.
The text guides investors on how to navigate the Head and Shoulders formation by offering various strategies for entering the market at different stages of the formation. These strategies try to optimize investment decisions by taking into account the symmetry of the pattern and potential breakout points.
In the next tweet, Efloud states that he does not generally trade based on patterns or formations, that is, he is not a "pattern trader". However, he states that he reads pages and pages of information from different sources about a particular topic or strategy, and that he is knowledgeable even about something he does not use often. In the face of this situation, he expresses his surprise that, ironically, investors or traders who frequently use this method do not know anything about the subject.
The general tone of the tweet shows a critical approach towards the fact that some investors in the market trade without understanding the basic principles or details of the trading strategies they use. Additionally, Efloud expresses his desire to provide information, perhaps in order to correct the mistakes he sees and share the correct information, and in this process, he expresses his discomfort with his own observations with the statement "my eyes are bleeding enough today." This expression has a figurative meaning and emphasizes the distress he feels about the situation he faces.
