Totally agree with Peat
A head & shoulder pattern is not a pattern until the neck is broken...Being aware of a pattern forming is good practice however one should not just focus on one pattern forming as often there are other patterns forming too, some may not be so obvious..
An important rule is not to pre-empt a forming pattern outcome, often one is tempted by the continual bombardment of day to day negative/positive media noise...
An example of this is my long term chart below...look at the many partly H&S formed patterns which nearly all failed to complete..pre-empting SUM would have been a total failure...
Actually as the H&S pattern is very common it is interesting to see SUM with only one (maybe 2 with a stretch of imagination) within a 4.5 year period.
H&S patterns are the most reliable of patterns so it is very common to see a mass sell triggers all firing off at once as seen on the chart below.
The H&S pattern on the chart below is called a complex top Head & shoulder pattern
The other "possible" H&S pattern I mentioned is a down slanted bottom H&S pattern a rather misshaped animal but the neckline break did spark a mass of buy signals.
As many H&S patterns aren't the textbook shaped models they can go unnoticed..
As a Chartist I focus a lot of my intention on patterns..when a chart has few medium term patterns I have to resort to other methods, standard Deviation channels is one of those methods.
The chart below shows secondary SD channels within a longer term SD channel...These secondary channels were drawn in some time ago so when they break down a new SD channel is drawn..If they were drawn today they would look different.
SUM is a beautiful specimen for investors..It is having a great run..Its been a bull market cycle since IPO with only one large bull market correction (and a couple of small ones) ...an overall of +300% increase
Interesting TA example on the Chart...A bearish H&S pattern with mass sell signals is a
must sell scenario for a disciplined Chartist..Many would ask why this happened to a fundamentally sound growth orientated company A disciplined chartist won't ask, the chart has decided for him/her....
sell!...As the H&S failure rate is 4%, it is remote to assume that the investor fright is a flash scenario no matter how positive the media is As a TAist I always remind myself of the possible scenario that as a individual investor I will be the last to hear the latest news..so if Mr Market tanks then there's probably a good reason..
When TA says sell out of a company that seems to be doing well ..you do and immediately put it on your watchlist and wait for buy signals...In SUM example if you sold 50,000 shares that same money would have bought you 57,000 shares at the next buy signals...added return at a much lowered risk
EDIT: The EMA100 was added in preference to EMA50...The EMA50 seems to be too sensitive for SUM and fires a lot of false signals...Look at how well the
EMA100 and
MA200 perform.:)
http://i458.photobucket.com/albums/q...2004052016.png