It is important for traders to identify chart patterns in order to make their trades profitable. An advantage of finding out price patterns is that the traders can gauge the price movements of a symbol in the past and can predict the movement of the symbol in the future. One of the most common trading patterns is the head and shoulder formation.

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In the above chart, a head and shoulder pattern is initially formed by a peak after a bullish trend called shoulder. This is followed by another higher peak in the price chart called head and then another lower peak called shoulder. The line joining the lowest points of the two shoulders is called as a neckline.

The head and shoulder pattern shows a bullish to bearish trend reversal. The point from head to neckline can be measured to identify a target and this pattern can be used to know where the price of the asset is high. When the price drops down a second time and goes below the initial peak, it indicates a bearish trend.

Identifying such formations in your price charts will help you take wise trading decisions in the future. So, look out for many patterns that suit your trading style and turn your trades into profitable ones.

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