This is the trading playbook where the charts do the talking and every session makes you a better trader. Hello everybody and welcome to the trading playbook. My name is Lawton here with Verified Investing and welcome to the second episode the the Sunday episode of the trading playbook specifically talking about head and shoulders patterns. If you missed yesterday's episode pause here. I'll still be here when you come back and watch yesterday's episode so you know exactly what I'm talking about. And before I go any further, please like, comment and subscribe. It really helps us out and allows us to continue making awesome free content just like this. The last thing I want to talk about briefly is we have our sale. Our sale is alive through July 12th. Get up to 40% off all of the courses on the Verified Investing website including my very own course Zero to 60 the Zero to Trader in 60 minutes crypto edition which will teach you everything you need to know from literally knowing nothing about crypto to securing your account to listing your first trade. With that being said, let's hop into it and if you remember from yesterday, we're talking about what? Head and shoulders patterns. And let's just go to the charts and give you a quick refresher. Right? So, these are the rules we kind of need to remember. Rule one is for a head and shoulders pattern we want an up sloping neckline, okay? Up sloping neckline. Next off the head, we want the head to be the highest point. And then finally, the measured move the inverse is the inverse but the measured move is the distance between the head and the neckline. So, in this case in this head and shoulders pattern we're talking about boom, boom, boom. Right? The measured move we find right there about 6% lower on the S&P. So, that was a quick rundown on the basics and the things we need to remember about head and shoulders pattern. But, now let's get into this week's plays. For plan A for plan A, excuse me, we're going to be talking about SMCI. And before I go any further, do you see a head and shoulders pattern? This is a bit of a quick uh excuse me, a bit of a uh trick question. Because initially, you might be thinking, "Yeah, Lawton. Look at this." Very obvious and clear head and shoulders pattern. But, let me copy this, go here. Remember the rules. We need to follow these rules. Let's start with rule one. Does it have an up-sloping neckline? No, it has a down-sloping neckline. So, then you might be wondering, "Well, then where's the head and shoulders pattern, Lawton? How can I get into this trade?" Well, that's a good question. Because I'm not drawing the neckline from there, I'm drawing the neckline from here. And if you draw the neckline from here, you have a beautiful head and shoulders pattern. Let me go ahead and draw this for you guys. Let's see. I can do this. Yeah. Look at that beautiful head and shoulders pattern on SMCI and look how big it is. Okay, so nice. So, let's follow the rules. Up-sloping neckline, yep. Head is the highest, yep. And measured move, let's find that measured move from the head all the way down to that neckline. And we got to take it to the break. We don't know where it broke yet, but excuse me, a measured move would be down at $4.40. Now, do we think it's going to go down all the way there? No, but could we get a a fall maybe to the lows here, right? Maybe to the lows here of uh from March around 19 bucks? Definitely. I think we could see that. So, this is play A, right? This is our first plan, plan A. Um if SMCI continues to fall into this week, watch for a close below. Right? And let's say price action does something like this. Breaks. Well, you can either, remember what I said, you can either enter on the break or on a retrace back to that neckline looking for a move lower. Right? And the way I'd probably play this is if I got in at a break, I would look for, you know, I would say, okay, I think this could easily get to 22 bucks, but if it got further than that, I would put a trailing stop just to lock in some gains. All right, but this is uh is a play that I really like coming into next week. We're going to go over a couple more plays that are might be a little closer to playing out. Like LITE. Now, LITE also beautiful head and shoulders pattern. I kind of cheated for you guys. I gave you guys the head and shoulders pattern um immediately. But again, remember the rules, up sloping neckline. Head is the highest and what is that measured move? And we'll see this boom. Basically right here, just to around $460. I have it written there for you. Right? And how do you enter this on LITE now that it's kind of broken here, you know, on on on Friday? Well, here's the thing. Let's say tomorrow or Tuesday, right? Like it it's it comes back into the parallel or finally closes below, you want it to confirm. And then after it confirms, you can start a short position or again, wait for a retrace back to it and then look for a move lower. On this one, you're going to have key levels of support probably around the $700 level. It's two factors, psychological level plus a gap fill throwback to a couple weeks ago. I like gap fills. Um but that would be about a 15% move in our direction. I think that's easily attainable considering LITE is kind of insane since it's the lows in October. Um not even a year ago, it's up about 464%. So, really nice there on LITE, but I'm looking for that move lower here. Looking for support around that $700 level on LITE. And finally, for plan C, let's talk about KHC. Now, I gave you two head and shoulders patterns. Now, I'm giving you an inverse head and shoulders pattern. I'm going to take that and we'll just go over the rules again. I said that it's inverse, right? Inverse is inverse. So, instead of an up sloping neckline, we need a down sloping neckline, which we have. Number two, instead of head has to be the highest, head has to be the lowest. It is there. So, those are the two factors for inverse. And the measured move is the same. It's just taking the distance from the head uh to the neckline. And we're looking for a breakout. Depending on where it broke out, that would be the measured move up, $28.50. And the reason I really love this position in KHC in particular is because it is such a beaten-up name. Kraft Heinz, if we're looking historically, right? Look how far down it is from its highs in 2017, the stock is down over 75% guys. 75%, that's crazy. But looks like it could potentially be a breakout candidate. What we're looking for in this upcoming week is a break of this neckline down sloping trendline, maybe a retrace confirmation, and then another move higher. Now, this measured move also coincides with this gap fill from earnings, right? So, that's another additional factor. Not only is it a gap fill, it's a gap fill from earnings, which should be extremely um powerful. And let's go through the final read. So, the last thing I want to tell you about head and shoulders patterns are that they're not not every single one has the same likelihood of playing out. Now, the question is, what do you mean by that? Right? I thought head and shoulders patterns are are bearish or bullish if they're inverse. Absolutely. But like every single pattern in technical analysis, it's based on probability. But there's one more factor that I have yet to talk about that's going to be very, very important to uh to keep in mind when you're looking at these patterns. And that is where the stock is on any given chart. On this chart in particular, KHC, I'm looking at it and I say this is so beaten up. So, a bullish pattern, right? A bullish pattern here at the lows of the chart, right? Are going to be have a higher likelihood of playing out than a bullish pattern at the highs of the chart. Now, that it can't work, but it has a higher It is a higher probability setup because it is so low. Along with that, KHC is a dividend-paying stock, so I really like this for potential longer-term trade. I T is something similar. This is at the highs of the chart. A bearish pattern at the highs of the chart are more likely to play out than they would at the bottom of the chart. Which takes me to to SMCI. Now, SMCI is kind of a mixed bag. If you look historically, yeah, it's beaten up about 75% down from the ties. But from its lows earlier this year, it had a great move about 165% up. Right? So, while it's still beaten up in general, that it's kind of in a middle ground, right? Because it was it had such a large move to the upside, creating such a bearish pattern. Right? But the lower a a a stock is at the chart, the higher probability the generally the higher probability that bullish is going to play out. The higher it is on the chart, the more uh higher of a probability that bearish pattern is going to um play out. All right. With that being said, that's all I have for you today. Again, my name is Lawton here with Verifund Investing. Please like, comment, and subscribe. And guys, please uh if you're interested in supporting us and supporting me, uh please check out my course Zero to Trader in 60 Minutes. I promise it will literally teach you to become a a crypto trader in 60 minutes. All right, I hope you have a wonderful rest of your day, and I'll see you next time on the Trading Playbook. Bye, guys. >> That's the trading playbook. Today's episode was your film study, the principle, the pattern, the framework. The application is waiting for you on Sunday. Real setups, real levels, ready before Monday opens. Subscribe to Verified Investing on YouTube. Saturday teaches, Sunday prepares, show up ready.