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Support and Resistance Strategies
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Head & Shoulders Trade
Head & Shoulders Trade Continued...
The above chart shows a Head and Shoulders formation. Notice how the pattern forms right on the support and resistance zone of 1.2500. Finding the Head and Shoulders formation is one thing, but when you can combine it with a strong support and resistance line you have an exceptional forex trade setup.
If you take a look at a longer timeframe (in this case the daily chart), you can see that the Head and Shoulders formation has forced the price through the support/resistance zone only to later show weakness and retreat back towards the neckline.
After the fall back towards the resistance zone, the price makes a bounce upwards and creates the last part of the Head and Shoulders formation.
Once you have identified that the Head and Shoulders formation is on a support and resistance zone, you must decide when to enter the trade. There are two potential entry points on this formation.