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#HeadAndShoulders #InvestopediaCliffNotes So a while back I had ran a poll asking how to run these posts and people wanted random and so we shift gears back to #TechnicalAnalysis and #PricePattern . While this is used for the stock market, would also be curious to know if technical analysis also holds true for crypto markets? The Breakdown: - "A head and shoulders pattern is a chart formation that appears as a baseline with three peaks, where the outside two are close in height and the middle is highest." (Investopedia) - Used w/in technical analysis to identify a potential trend reversal from bullish to bearish - "The head and shoulders pattern is believed to be one of the most reliable trend reversal patterns." (Investopedia) How do I spot a Head and Shoulders pattern: - This can be identified on a price chart if you know what you are looking for 1. A stock's price rises to a peak then declines to a base price around where it was 2. New increase in price goes above previous peak and then again declines back to base price 3. Next price run up goes to the peak of the first but not the second before declining back down to the base or below neckline (line connecting first and second troughs) What should I know about Head and Shoulders Pattern before investing: - "It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end." (Investopedia) - If you believe in technical analysis and you are about to start a new position in a stock that has this pattern ... maybe pause to see if potentially waiting will give you better entry price or wave you off - "An inverse or reverse head and shoulders pattern is also a reliable indicator that can signal that a downward trend is about to reverse into an upward trend." (Investopedia) What are the downsides of Head and Shoulder Pattern w/ investing? - "Stock prices are the result of a continuous game of tug-of-ware; whether a stock's price goes up or down is the direct result of how many people are on each team." (Investopedia) - This means that sometimes the value of a stock has less to do with funadmental characteristics of a company and everything to do with bullish or bearish sentiment pushing price. - My thoughts on this is that logically a company's market value should not care about the pattern; however, enough people believe it predicts the future ... creating a self fulfilling prophecy Reference: Investopedia / Video: https://www.youtube.com/watch?v=GU5xTcdQ-zQ P.S.: How did you learn about technical analysis and do you rely heavily on it? Also, check out my channel for #My5XYZ on the Metaverse. #MakeTheWorldBetter #KneesAndToes
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