The Most Talked About Price Pattern in Technical Analysis

02/10/2016 6:00 am EST

Focus: ETFS

Gregory Harmon, CMT

Founder and President, Dragonfly Capital Management

For the benefit of all newbies still learning about technical analysis, Greg Harmon of Dragonfly Capital discusses the head and shoulders price pattern and analyzes an ETF that currently shows such a pattern to illustrate his point.

The most talked about price pattern in technical analysis is the head and shoulders top. This pattern is a lot more complex than most traders understand. It should happen after an uptrend. It works best when volume is declining through the pattern, until a pick up as price drops from the head and then again from the right shoulder. The shoulders should be about equal in height with the head well above. It also does not trigger until price goes through the neckline.

The Nasdaq 100 ETF (QQQ) shows a solid head and shoulders pattern. And a trigger Monday. The chart below shows that there is now a price objective to at least 79. That is quite a bit lower. Many more traders will position themselves short off of this trigger. But it is far from a sure thing that it will get to the price objective.

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By Greg Harmon of Dragonfly Capital

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