Formulas for head and shoulder
Price target = Neckline - ( Head- Neckline)
Price target= Neckline + (Neckline- Head)
Can someone plz tell the logic behind these bolded signs
This is technical analysis; what makes you think that it’s logical?
As S2000 states, this is pattern analysis not logic. Some folks spend a lot of time studying patterns and have come up with these rationales. Similar to how bookies handicap sporting events.
Typically these predictions only work slightly more or less than 50% of the time. So the idea in Technical Analysis is to make bets then quickly cancel them out if the price response doesn’t go as hoped… but to also let the bets run as long as possible if they do in fact work out in your favor. There is a saying in tech analysis to cut your losers short but let your winners run. That way, even if you lose more often than you win, you probably can do alright on an annual basis because your winners win big and all your many losses were small.
For what it’s worth, I am also a member of the Chartered Market Technician Association. I am no “chartist” by any long shot though. Head and shoulder patterns can be interesting to make little bets on and see how it goes. You aren’t using logic you’re just using rules some people developed after researching thousands and thousands of patterns. It’s again like a bookie handicapping sports. Not a bible but can be interesting for some patterns. Many patterns are not useful, FYI, and often you will see folks who don’t really understand technical analysis looking for crazy patterns everywhere and treating it like some religion. Don’t be one of them.
Cheers - good luck - you got thisđź‘Ť
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