Complex Head and Shoulders Price Patterns

A variation of the head and shoulders pattern sometimes occurs which is called the complex head and shoulders pattern. These are patterns where two heads may appear or a double left and right shoulder. These patterns are not that common, but have the same forecasting implications. A helpful hint in this regard is the strong tendency toward symmetry in the head and shoulders pattern. This means that a single left shoulder usually indicates a single right shoulder. A double left shoulder increases the odds of a double right shoulder.

Tactics

Market tactics play an important role in all trading. Not all technical traders like to wait for the breaking of the neckline before initiating a new position. As more aggressive traders, believing that they have correctly identified a head and shoulders bottom, will begin to probe the long side during the formation of the right shoulder. Or they will buy the first technical signal that the decline into the right shoulder has ended.

Some will measure the distance of the rally from the bottom of the head and then buy a 50% or 66% retracement of that rally. Still others would draw a tight down trend line along the decline and buy the first upside break of that trend line. Because these patterns are reasonably symmetrical, some will buy into the right shoulder as it approaches the same level as the bottom of the left shoulder. A lot of anticipatory buying takes place during the formation of the right shoulder. If the initial long probe proves to be profitable, additional positions can be added on the actual penetration of the neckline or on the return move back to the neckline after the breakout.