- Neckline Break: The head and shoulders pattern is not complete and the uptrend is not reversed until neckline support is broken. Ideally, this should happen on high volume.
- Support Turned Resistance: Once support is broken, it is common for this same support level to turn into resistance. Sometimes, but certainly not always, the price will return to the support break, and offer a second chance to sell.
- Price Target: After breaking neckline support, the projected price decline is found by measuring the distance from the neckline to the top of the head. This distance is then subtracted from the neckline to reach a price target. This target is a rough estimate.
The signal to entry this trade will be a break of the neckline support at 1600 on volume. The target will be a secondary trendline + horizontal support + head projection at 1465. The stop loss will be 1703.
This trade would have a 1/1.4 Risk/Reward ratio.
We never entered this trade, so no loss.
Pattern invalidated.