Technical Trading Tips and Techniques by 
Most people who have any interest in trading or the financial markets have at least some familiarity with the famed Head-and-Shoulders chart pattern. On the accompanying chart, I just wanted to show a pretty classic instance of it on a long-term GBP/JPY chart. Although this is very basic stuff, it just goes to show how chart patterns can be very relevant in the Forex markets today.
The well-known head-and-shoulders reversal pattern is similar to the triple top and bottom patterns. The primary difference lies in the middle of the pattern. In a head-and-shoulders top, the middle peak (the head) is higher than the other two peaks (the shoulders). In an inverted head-and-shoulders bottom, on the other hand, the middle trough (the head) is lower than the other two troughs (the shoulders). The line connecting the troughs in a head-and-shoulders top, or the peaks in a head-and-shoulders bottom, is called the neckline. Breaks of this neckline are considered trading signals. Targets for head-and-shoulders tops are measured using the length from the top of the head to the neckline, projected down from the neckline break.
- James
James Chen is the Chief Technical Analyst at FX Solutions, a leading Forex broker. He is also a registered Commodity Trading Advisor (CTA) and a Chartered Market Technician (CMT) Level 3 candidate. At FX Solutions, Mr. Chen writes daily currency analysis, conducts forex trading seminars, and has authored numerous articles on currency trading and technical analysis for major financial publications. His upcoming book, Essentials of Foreign Exchange Trading