Head And Shoulder Pattern : A Profitable Trade Set Up in The Forex 4 Hour Time Frame

I am still posting my forex trade videos regularly here in my YouTube Channel but it has been a long time since I have written an article about the ideas behind my trades. So in this post I will be writing a much detailed reason why I took this HEAD AND SHOULDER forex trade in the 4 hour time frame.

 My 4 Hour Time Frame Forex Trading Strategy Set ups

If you read my previous trades and watched my videos, then perhaps you will now have an idea of what my forex trading strategies are using the 4 hour time frame. But for those who are new in this blog here it goes..

Combination Of Engulfing Candles and Pinbars that are formed in a key level

- This is just basically candles that engulfs or formed a pin bar at least 2 TIMES (the more the better) in a known support or resistance.

4 Hour Time Frame RSI Divergence

- In this strategy, I used the RSI Indicator as a guide to know if the current forex pair is forming a divergence movement.

Head and Shoulder Patterns in the 4 Hour Time Frame

- I think this is one of the most known forex trading set ups of all time because its very easy to recognize and trade.

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Recent Head and Shoulder Forex Trade in GBPUSD 4 Hour Time Frame

 Let me share with you a winning trade that I had with the use of the head and shoulder pattern set up in the 4 hour time frame.

Based on my experience, GBPUSD is a good forex pair to trade when such pattern is forming especially if it occurs in the 4 hour time frame.

As you can see in the image below, the price came back to its previous resistance area forming the LEFT SHOULDER along the way  and got rejected heavily as it tries to reach out more which then forms the HEAD.

By the time the price to move up again and almost leveled with the left shoulder, that's the time I took an entry. I know you might think its too early for me to take the entry but knowing that it is the GBPUSD which based on my experience is a good forex pair to trade when a head and shoulder pattern is forming I did not hesitate. Also, if you look at the charts regularly you will notice that GBP is really bearish this past few weeks.

I have my entry point figured out so I need to plan for my exit points. 

 My stop loss I placed just above the line of the resistance area that I plotted, while the profit target is placed right above the next support area where the price bounced.

My trade set up then look liked this:

Several candle had passed and it now looked like this below. By this time I was already confident that the HEAD AND SHOULDER formation that I was anticipating to occur  would really materialize. The combination of bearish engulfing and bearish pinbar candles to me indicates that the bears have won.

I had this trade set up with a risk-to-reward ratio of 1:3. Since I am risking 200$, I am assuming that I would win 600$ if my profit target will be reached.

After a couple of days later, finally my profit target was reached which by the way is the last trading day of the week. I'm just really glad that  finally its over and I can now move on again to find another profitable trade set ups.

This trade took several days before it finally reaches my profit target. I am no expert in forex trading, I also have losses but with a good trading plan and strategy I still managed to gain something from the forex market..

And with that let me end this article with this quote..

" Plan your trades, and trade your plans"

If you wish to watch the live video of this trade you can go to this link and watch it :)

https://www.youtube.com/watch?v=Z_mBTm1kw8w

Forex Strategy That Works In The 4 Hour Time Frame

Slowly but surely my capital every week increases. 

But that’s only possible through dedication and discipline in following my forex trading strategy that works in the 4 hour time frame.

I’m up for the long term that’s why it won’t matter to me even if I only have one open trade a week.

 It’s better like that because I avoid over trading.

  Overtrading is one of the reasons why most of the traders fail.

My defense is my best offense in the market.

Trading only on a minimum of once a week not only keeps me away from overtrading, it also gives me control over my emotion towards the market.

Don’t be afraid of missing out opportunities because the market is not going anywhere.

Stick to your strategy and patiently wait for your trading set ups to arise before you take an entry

Just like what I’m doing, I patiently wait and wait and wait for my set ups to occur before I decide to join in.

Enough said, let’s go on now to my 1:3 risk-to-reward winning trade in NZDCHF.

Using the same forex trading strategy in the 4 hour time frame consistently

I just want to say that I am literally using the same strategy over and over again in the market. Same set up, same plan, same risk to reward ratio set up, everything the same. Only that it varies on the forex currency pair that I trade on.

 Plotting support or resistance key areas

This is the first thing that I always do with the charts in the 4 hour time frame. I plot key support and resistance and wait for the price to make a move on those areas. This support or resistance key areas may be a horizontal line or in this case in NZDCHF  a support trend line as shown below.

click the image to zoom in

Japanese candle Stick Formations Setup

The second thing I do then is to look for or sometimes wait for Japanese candle stick set ups to form in this key support or resistance area that I plot.

Using my own strategy, I need to wait for a combination of engulfing candles and/or pin bars.

In short my set up candles are engulfing candles and pin bars, but note that I said also that this candle stick formations needs to be formed right at a KEY AREA.

I don’t just randomly trade engulfing candles and pin bars, it needs to be formed in a key area as well.

And if we look at the image below, there are three bullish engulfing candles formed right at the trend line support that I plotted.

click the image to zoom in

Planning for the risk-to-reward ratio

• Entry Point - This combination of three engulfing candles that are formed right at the support is my final clue for an entry trade. Of course you can wait for a little bit of pullback but in my case here I put an entry immediately upon seeing this 3rd bullish engulfing formed.

• Logical Stop Loss Point - My stop loss placement is right below those bullish engulfing candles and the support line. I needed to widen my stop loss so that I can give some space for the price to move in and out. Also, it is much safer down below that area because buyers are positioned there to reject the price.

• Profit target placement- As you may see in the image below, there is a clear previous resistance that formed.Since this bullish trade set up looks so strong with the presence of the support trend line and 3 bullish engulfing candles, I will place my profit target right at the resistance zone.

The final trade set up would then look like this below.

click the image to zoom in

Forex psychological stage a.k.a the waiting stage

Entry point, stop loss and profit target all secured. I evaluated the trade set up and I perfectly followed my forex trading strategy 100%.

My plan and strategy is already fixed and constant. The only problem now is my own psychology and emotion towards my trade.

That is why I set my trade and walk away from it. Not only that I avoid stressing about it but also I kept myself from interfering from it.

I will have no regrets if this turns out to be a losing trade because I followed my plan, I followed my strategy, 

I followed my system. I also accepted the fact that my strategy is not a 100% win rate and so I will have losses.

 BUT GUESS WHAT HAPPENS WHEN PREPARATION MEETS OPPORTUNITY? 

click the image to zoom in

Yes, my profit target was hit and I gained 3% profits.

After almost 3 trading days the price finally reached out for my profit target.

Every time I have a winning trade like this it makes me more confident and trusting more on my trading strategy.

I managed to make an actual video of this trade here in my YouTube Channel. If you like you can watch this live video right here : https://www.youtube.com/watch?v=d6fMJ40uGxY

You can subscribe to my channel and browse my videos and you will see how my strategy evolved  from just a simple set up to up until to what it is now.

More power to you!