In forex trading…..whenever we talk about the ” Head And Shoulders ” pattern formation..

I am sure almost 99.9% of traders would have heard about it and even traded it before.

This is also one of the forex pattern out of many that I love to trade as well…

Simply because it is very reliable and easy to trade…

Here in this post, I will be sharing a technique which I take advantage of this ” Head & Shoulders ” formation to grab a nice 272 pips trading the Gbp/Usd.

With a Head and Shoulders formation in the market…..what does it means ?

This pattern is technically a ” bearish ” formation….

Sort of having ” 3 tops ” forming a strong resistance …..but with the center top being slightly higher…

Like this :

How ?

Do You ” Also” manage to see a Head & Shoulders pattern in the chart above too ?

( And the Neckline as well….? )

Some might see it without much difficulty with their naked eyes…. just like I do….

Some might get abit confused and not sure…

It’s alright…

For the sake of the absolute newbies….I shall label the details clearly with another illustration :

Now……being able to spot such ” head & Shoulders ” formation in the market doesn’t mean You would end up winning the trade…

Just like any other forex trading strategy…

One still cannot escape laying down a concrete trading game plan…

This game plan must essentially includes :

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1)  When to enter to ” SELL “   ( in order for minimum risk )…

2)  What ” Stop Loss ” to use and what is the strategical position to place it…

3)  What ” Take Profit ” target to aim for….

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Even with such common ” head and shoulders ” pattern…

But if a trader failed to consider these 3 critical elements for his/her game plan…

Then I would say the winning probability is not high in fact……

It is not about how much You would win….

It is about how much ” risk ” You have to bear when You’re wrong……!!

That explains why even with a Stop Loss in place…..it doesn’t mean Your trade is protected…

When too many ” stop loss ” get hit again and again….it would accumulate to BIG LOSS in the long run too..!

Agree on this ?

If You are still not confident on laying down a game plan which can enhance Your winning % trading such head and shoulders pattern…

Then read on as I share my entire ” decision making & game plan ” on trading this pattern.

It’s simple….once You understand my detailed explanations …* smile *

For a start, let me share about :

Step #1 :  When To Enter To SELL

In order for this ” Head and Shoulder ” pattern to be a VALID one…

The price has to move and ” closed at least 1/3 ” down on the right shoulder…

Or else it cannot be considered a valid head and shoulders…

However…just like in other forex case studies of mine….I would not just enter like that…

I need a certain ” price actions  or candle stick formation ” to convince me to enter ….

For this trade…..I decide to enter once I spotted the ” inverted hammer with a bearish closed “….

( I SELL at price 1.64320 )

Step #2 :  What Take Profit ( TP ) To Aim For ?   What Stop Loss ( SL ) To Use ?

Just for Your information…..this head and shoulders pattern is spotted on the daily time frame..

So the Take Profit target can be in the range of 150 - 250 pips as daily time frame is a much bigger price projections..

In fact….I do not trade using smaller than 1 hourly….4 hourly or daily time frames for my strategy as they are filed with noise & not accurate…

For this strategy….I need to calculate the Take Profit first before the Stop Loss…

That’s because  without knowing the Take Profit level to aim……

I would not know what Stop Loss to use and where to place it….( in order to achieve a good risk/reward ratio )

If You have been reading about my forex empire blog….You would know by now how much emphasis I place on a good risk/reward ratio ..

Risk/Reward ratio no good….I would not trade….simple..

For the Take Profit target….I will be using the ” neckline or the previous swing low ” as a maximum target… ( whichever is nearer )

And I would be aiming for a target at least 40 pips above the nearer one ….

Here’s my TP & SL after calculations  :

- SELL at  1.64320

- Stop Loss at  1.65750 ( 143 pips )

- Take Profit at 1.6162 ( 272 pips )

….which give us a good risk/reward ratio of   1 :  1.9 ….. ( good to go )

As a standard practice to ” reduce risk further “……

I will shift the stop loss to break-even point after the price has moved about 143 pips  ( my risk )

This is to prevent seeing a winning trade turning into a losing one.

So how did this trade turn out  ?

My Take Profit was hit after 3 trading days..

Winning a nice 272 pips for this trade.

If You notice on the illustration above too…

Shortly after my ” Take Profit ” target was hit….the price turn up again …

So it really pay to calculate a more ” conservative ” profit target always…

It does pay off in the long run !  * smile *

Though  it is a conservative target….but a 272 pips win is definitely good profits for most traders..

Plus…the risk/reward ratio for this position is a good 1 : 1.9…

I would consider this a good winning game plan in fact……

Agree ?

End of the day…..it is really simple to trade such ” pattern formation ” if You know how to indentify them when they happen….

Try to spot them on at least the 1 hourly or bigger time frames…

Because they are more reliable and accurate ….

Here’s the earnings screen shot with Sell Entry, SL & TP to share :

( click to enlarge )

This trade netted me Usd $2706.11 in profits.

Did You see that my stop loss has been shifted to break even in the earnings screen shot ?

This is to ” reduce risk ” further…

Not fun to see a winning trade turning into a losing one and giving ugly deficit to our trading account - Which can be totally avoided by doing such simple move….

Agree ?

* smile *……alright so much for this forex strategy on the head and shoulders…..

Hope You learn something from this proven pattern formation today….

…..or if You have been trading such pattern previously…..BUT just can’t secure as much winning trades as You desire…

Then after reading my strategy and entire decision making process…

Everything would be much clearer now for You…. I hope…..

Cheers and happy trading.

It is without a doubt that there are tonnes of  forex trading strategies You can get to learn online…

Whether the forex strategies are from forex forums or other traders’ blog….it doesn’t matter…

Because the simple fact is that there are way ” too many ” different forex trading strategies You can learn for free…

Which in the process….might be giving You more confusions than helping You.

Just like the old saying of ….” Too many choices can be really confusing & BAD ! “…..

If You have been relying on others’ forex strategies to trade the market….BUT somehow just could not REALLY make consistent profits no matter what…

Then maybe it’s time You consider designing Your very own Forex Trading Strategy…

And it is really simple as long as You understand some ” Truth ” about how the price moves in a forex market…

Let me give You an example on this sentence here :

We all know that technically….there are 3 directions that the price would be moving namely :

1) Up - Trend ….? ( Bullish )
2) Down - Trend …? ( Bearish )
3) Sideway or Ranging ( Uncertain )

That’s about it…..

It is not difficult to know this but STILL……no doubt most traders ” THOUGHT ” they know all that :

“….OK…it’s a Up-Trend now…..I shall BUY…”

OR

“….I see the Trend is down now….I shall SELL …”

Sounds rather simple indeed……but how come only 5% of traders in the WORLD really make profits consistently ?

What’s happen to the other 95% ?

They lose miserably….again and again….after bursting their account ( or ACCOUNTS….)..

If YOU are still not in the category of ” Bursting ” Your account……

…then consider Yourself lucky as what You are going to learn here might change Your view on forex trading…

And even Super-charge Your success…..No joke !

But how ?

Easy….just understand that in the forex market….there are certain ” fix ” pattern You can take advantage of in order to put all odds on Your side.

Such as …?

It is none other than the ” Price Pullback / Retracement “…..

Whether it is a Up-Trend……or Down-Trend….

There would SURE be a ” Price Pullback / Retracement ” period which You can enter with a good Reward/Risk ratio…

So in order to design Your very own Forex Trading Strategy that truly works…

It has to tap into this ” Price Pullback “….and fully take advantage of it..

Let’s say it is a Down-Trend now…..and the Price ” Already move / breakout “…..

Are You going to jump in straight away and anyhow plant a stop-loss value just because other traders said that THEY ALSO use that amount of Pips for it ?

Absolute no…!

That would work sometimes but if You want to truly put all odds on Your side….

You really have to get the ” HINT “ from the market itself……especially the PRICE ACTION.

Here’s what I mean by a ” Pull-Back ” during a DOWN-TREND to share :

The amazing thing is that…..

…Whether it’s in a Up-trend, Down-trend or Sideway market….

This ” Price Pullback ” would definitely exists and it is just a matter of spotting them and then enter into the prevailing trend.

(….and strategically plant the stop-loss just on the top of the pull-back….)

Moreover…..it is also the ONLY phenomenon that would occur in the market no matter what the direction is…

So in order for You to design a forex trading strategy that TRULY works…

You just got to design this strategy around the ” Price - Pullback ” factor …

It is when You ENTER during a Price- Pullback that You can achieve a good Reward/Risk ratio each time You trade..

Combined with sound money management….You would have no problem raking in consistent profits from Your trading week after week…month after month..

( …Just like I do…..* smile * )

Nothing beats being able to trade the forex market confidently and knowing that each time You enter into a trade…..You are in fact putting all odds on Your side !

This feeling is indeed very nice…..

Try it and You will know….

So…..isn’t it time You design a Forex Trading Strategy that Truly works after this …?

Yes…….You’re hearing it right…

Not 3……not even 2…….but JUST ” One “ Forex Trading Strategy is all You need to make consistent profits every month trading forex.

Before I go into the main details on this….

Let me share with You a little interesting ” story “ that got me decide to write on this forex trading strategy…* smile *

Few weeks back, I actually attended a forex seminar ( free preview one in Singapore ) to support the speaker whom is one of my friend in the forex community.

On that eventful day…….sitting next to me was a lady and I must comment that she’s a rather ” friendly ” one…

During the 15 minutes break, she actually initiated and start chatting with me…( my wife was NOT with me for that seminar.*evil grin* )

She asked quite a few questions as she is still a newbie to forex and very curious…..*smile*

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The question that got me decide to share in this blog is this :

” Hey….since You are already trading full time now….

And I know there are tonnes of different strategies out there but……IF…

I just need ONE forex trading strategy to profit consistently every month..

What should it be ? …“

My Answer for this lady is… :

Of  Course !

In fact….You really don’t need too many forex trading strategies for your tading.

Sometimes too many choices can put You in an indecisive situation and simple don’t know which one to use..

All You need inYour basket is perhaps 1 - 3 proven trading strategies that have been proven to work and the success rate is at least 60%  ( regardless of market conditions..)

So to name one such forex trading strategy to share ….

I would say it is the ” breakout trading “…

Reason being is that….it is really simple to anticipate a breakout ( normally it is after a tight range ) and You do not even need any complicated technical indicators for Your entry.

Combined with a good Reward/Risk ratio..

You would definitely be able to confidently capture those massive pips when the breakout happens…

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Having said that…..the 15 minutes break is roughly over…

So we just exchanged emails and correspond from there ( ONLY forex related topics ! nothing else….in case my wife reading about this! LOL)

…not to mention….I also told her about my forex trading empire blog too….* smile *

OK…..so much for that little story…

Let’s go into the main topic for this post….( I really want to avoid writing long winded forex article actually….You like it that way too right ? )

Having many ( 20 or more ? ) forex trading strategies in your arsenal might sound good….or sometimes impressive to some..

However….when the choices are just too many….it can backfire and causing You some unnecessary ” dilemma” and affect Your trading.

There is a period when I am personally experiencing this same ” indecisive-ness” too because I am one whom just love to learn and test out any new forex trading strategies I can lay my hands on..

The power of ” ONE ” is indeed powerful…

And that applies to forex trading as well…

Sticking to just ” ONE ” forex trading strategy that works and combined with good money management + reward/risk ratio can really increase Your trading efficiency ( as well as monthly PROFITS too ! )

One such strategy I always swear by ( even until now ) is trading the ” Breakout “..

And the beauty of trading a ” breakout ” is that You do not need any indicators or much analysis to profit from it…

Oh ya……aiming for 100+ pips  profit or more trading a breakout is not only realistic….but also simple !

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Here’s why ( 3 Steps proven methods ) :

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1) You just need to know the certain condition which would trigger a breakout…

2) You need to know ” when ” to enter to capture those massive movements when it happens…

3) You need to know ” How ” to protect Your capital if it is just a FAKE breakout..

Follow on as I show You ( with illustrations ) how to properly execute these 3 proven steps to profit BIG TIME from breakout trading…

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** 1st Step : You just need to know the certain condition which would trigger a breakout…

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If You don’t know yet….

When the market is in a ” TIGHT Sideway Range ” for a while …You can then be ready to expect a breakout coming…

( the longer the duration of this range….the more EXPLOSIVE the breakout would be!)

Here’s an illustration on ” TIGHT Sideway Range of GBP/USD ” to help You understand better :

( click picture to enlarge if you want…)

The ” Tighter ” the sideway range is……

The more EXPLOSIVE the Breakout would be….

I am trading on the 1 Hour time-frame and the sideway range You see in the illustration has been stretching for more than 24 hours..

When the Price broke out from the tight range…..it climbs for about 250 Pips in just hours…

( See….! I told You it is simple to grab 100+ Pips or more trading the breakout ….*grin*)

Ok…..now You know the ” Certain Set-up” You need in order to anticipate a Breakout…

I shall show You ” When “ to enter into the market to capture those MASSIVE Pips when it happens…

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** 2nd Step : You need to know ” when ” to enter to capture those massive movements when it happens…

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Normally You would just follow in the direction of  the ” Previous ” trend…..

That’s because during a strong trend….the market would normally ” take a break ” or so called ” Consolidated In A TIGHT Range “…

And that’s where You get in !

Here’s an illustration to show You ” When “ to get in the simple way :

What You need to do is manually enter into the trend when the price broke out…

OR….

You can also use set a ” Pending Buy Stop ” ( maybe 15 pips interval ) order just above the recent Highest Resistance..

( If You do not want to sit glue to the PC to wait the market every minute that is…..)

In order to trade a Breakout ” Profitably ” each time…

You need to understand one important thing here…

And that is the Reward/Risk ratio of the trade You wish to enter..

A recommended Reward/Risk ratio I personally use is 2 : 1….

Which means :

Every time I win….I would win 2x !

And when I am wrong and lose….I only lose half ( plus spreads )

A Reward/Risk ratio of 2 : 1 is highly realistic simply because this is a ” Breakout ” set-up we are talking about here..

Where the price movements are truly MASSIVE when it happens…!

( Don’t believe…..? Open up You chart later and scan for those ” LONG Period of Tight Ranging Market “ to know what I mean here….)

Trading ” Breakout ” is truly simple and the reward are very good most of the time…

However…..

There would be times when the market behave in a uncertain way and resulted in a FAKE breakout…

So what does that means ? FAKE..?

It means You would probably presume the market is breaking in ” that FAKE ” direction and so You also jump in…

Only to see the  market reverse and hit Your Stop - Loss order…  ( I hope You already have it set in the first place though! )

Then how to counter that ?

It’s coming up next…..continue reading…

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** 3nd (Final) Step : You need to know ” How ” to protect Your capital if it is just a FAKE Breakout..

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To be caught in a FAKE  breakout while using this forex breakout trading strategy  is not uncommon..

After all…the market is filled with ” meaningless ” and ” misleading ” signs…..most of the time !

And it is up to traders ( like You and Me ) to learn how to pick the more reliable ones and filter the bad ones..

Using a good Reward/Risk ratio of at least 2 : 1 is one good way to counter this problem and still make sure You would end up in Profits when the TRUE Breakout happens…

( Which is explained in 2nd Step….scroll up and read again if You need to ! )

That’s because if You’re made to believe that the breakout has happened and jump into it…..but at least You are using a STOP-LOSS to ” Protect” Your capital here…

A Stop-Loss place at the ” appropriate ” position is very essential here….hope You’re seeing it too.

Since it is in a TIGHT Range…..the Stop-Loss needed also would be very tight too….which is good.

If the first trend happens to be a FAKE Breakout…and get Your Stop-Loss hit..

Then when the true trend happens…..You would jump in with the good reward/risk ratio ..

Simply by following this direct and proven rule…You would be assure that ending up with profits end of month is very easy and achievable!

No doubt about it !

Another way to ” filter ” off FAKE Breakout is to only believe those that happen during the FIRST 2 hours of active trading period…

Meaning for the US Market….it is from 12pm - 2 pm ( GMT )

And for the London Market….it is from 7 - 9 am ( GMT )

In the example above…..the trade is from the GBP/USD…

And the Breakout of the ” LONG ” candle happens at 1PM ( GMT ) ….which is the  active trading period of the US market…

So it is a sure sign that it can be trusted….

Nothing beats pulling out your chart and scanning for the ” Tight Sideway Range ” which I have been talking about really…

Get a ” Feel ” is very important especially when price movements are involve…

But one thing for sure….

Trading ” Breakout ” is truly Profitable because  of :

1) Good Risk/Reward ratio achievable…

2) Massive Movements and Lots Of Pips For You To GRAB ! * Smile *

Imagine You’re doing the same thing for 3 -4 currencies OR MORE….

I don’t need to tell You about the amount of PIps YOU can grab …..right ..

In fact….there’s a period of time when I ONLY trade the ” Breakout ” …

And not only do I have more time to do other things….( because I just need to scan the market every hour or so…..5 minutes at most  using my smart phone * smile )

But also….the amount of profits I got every month from  such forex trading strategy literally grow my account so rapidly too..

Yes….I can’t help but to emphasize again…

Just this ” ONE ” forex trading strategy is enough to make You smile month after month …….trading forex online.. * smile *

I knew it’s possible….because I have been there and DONE THAT !

If You’re ” still “ scalping the market for small profits of  15 - 20 Pips…

And somehow have to ” Glue ” to the screen watching every tick as the price moves…

Then maybe after reading this article about my Breakout forex trading strategy…

You might consider try trading the ” Breakout ” to see what I mean by :

” ….It is truly profitable and need very little time from YOU - Proven ! ”

…..Thanks for reading this far…

I hate writing LONG WINDED post too….trust me on that ! LOL…

To Your Forex Success,

- Aaron ( your trading friend )