This is the Trading Playbook where the
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Hello, hello, hello everyone. Lawton
here with Verified Investing back with
another Trading Playbook. Happy
Saturday. Hope everybody is doing well
and having a very, very
restful Saturday.
Today,
we're going to be talking about some
very exciting things. But, speaking of
exciting,
today I'm actually going to be going to
a college football game.
First time doing that. Going to go see
the University of Florida Gators play
against Ole Miss. So, that should be
fun.
Um, I have to let you guys know what
ends up happening, but
I know there's going to be a lot
tailgating, which I've never done
before. Just because my college never
had a uh a university didn't have a
football team. We had lacrosse and some
other sports instead. But, anyways,
um
before you go anywhere, before we hop
into things, make sure to like this
video, subscribe to the Verified
Investing YouTube channel, and go ahead
and uh leave a comment down below. Let
me know what you want me to cover next.
And I see this all the time, guys. All
the time you guys saying,
"Well,
why don't you cover this stock or that
stock or this stock or this thing?" And
while I can cover individual stocks,
what I'm talking about are broader
things that you guys want to know,
right? Some technical analysis concepts
that I want to that you want to know.
For now, I've covered a bunch of
different ones, so we're going to keep
going and covering some ones that I
might have covered before, but for all
the of you new people, setups are still
valid and maybe I do an even better job
of explaining it this time.
But anyways, uh
let's talk about the play.
And in today's episode, we're going to
be talking about head and shoulders
patterns, okay? Head and shoulders
patterns and inverse head and shoulders
patterns.
So, let's go ahead and talk about it.
So, what is a head and shoulders
pattern?
And Bitcoin is the perfect example of
this.
Well, think about a person, right? Let's
just draw, you know, a stick figure
here.
Well, looking at this guy,
you see his shoulder here,
his head,
then his shoulder there, right? So,
those are the key points that you got to
remember. There's a shoulder on the left
side.
The head is right here.
And shoulder on this side. Right? Left
shoulder, head, right shoulder.
So, let's talk about Bitcoin and how
that could go into it and give us an
example.
Taking a look, we can see Look at this.
Left shoulder,
head,
and right shoulder.
Second question that we need to answer.
Is a head and shoulders pattern bullish
or bearish?
Right now that we see it's a head and
shoulders, left shoulder, head, right
shoulder. Is it bullish or bearish?
Well, you guys probably have it
figured out just because the the
cryptocurrency went down afterwards.
But a head and shoulders is a bearish
pattern.
Okay? So, we need a left shoulder, a
head, and a right shoulder. It's a
bearish pattern. And what are the final
rules that we need to follow on head and
shoulders patterns.
And if you're following with me, writing
it down, here is what I want you to
write.
In order for
a head and shoulders pattern to be
valid,
A,
the neckline has to connect all the way
through. Oh, excuse me.
The armpits.
Meaning,
I can go ahead and take this.
It connects all the way through.
Connects on the left side.
The armpit. The armpit and the right
side. This is the neckline. That's the
first rule that we need to follow.
Second rule,
right?
Neither shoulder
Neither shoulder can be higher than the
head.
Right? The top of the head has to be the
highest point in the full formation.
Right? So, that's the second rule.
The head has to be the highest point in
the head and shoulders
formation.
And finally, the most important rule
that I think people get
messed up on the most is
the neckline has to be up sloping. It
absolutely has to be up sloping. You can
see this Bitcoin head and shoulders
shoulder, head, shoulders is up sloping.
Right?
Now, when I say it's bearish, do we have
a measured move?
How do you play this? Well, let's go
ahead and take a look.
To find the measured move on any head
and shoulders pattern,
you take the point from the top of the
head
all the way down to the neckline.
And then what you're going to end up
doing is dragging that
to
wherever it breaks.
In this case, the measured move was a
move down to $35,000,
right? And while we do have a measured
move, just because there is a measured
move, doesn't mean it needs to go all
the way.
Bitcoin, the measured move was a move
down about 56%.
But instead, Bitcoin only dropped about
27%, about half of that move.
Is that still valid?
For me, absolutely yes. It did play out.
It's done, right? So, remember, just
because there's a head and shoulders
pattern, doesn't mean, you know, you got
to wait until the measured move. It
doesn't always work like that.
Cuz there might be support, like there
ultimately was all around this pivot
around $60,000.
You know, so
the measured move is just a guide of
generally where it could go, not where
it has to go.
But what about the opposite?
What about inverse head and shoulders
patterns?
Well, inverse is just the opposite.
In the case of Bitcoin, for an inverse
head and shoulders, I had to sneeze.
Sorry, I had to mute myself to sneeze.
The great thing about this chart is
that while we have a beautiful head and
shoulders pattern there,
there's also an inverse head and
shoulders pattern
on the same chart.
And it's actually moved up and broke
that level.
So, remember, what are the rules? Number
one,
the neckline has to completely cross
through the armpits.
Has it completely go through the
armpits? Check. And connect all the way?
Check.
What else do we need? Well, we need the
head the top of the head
to be the highest point of the
formation.
So in this case, yes. The head is the
highest point of the inverse head and
shoulders formation.
Let's take this measured move.
Measured move would be to about 107.
And third,
right? Third,
though and this is the most important
part,
the slope of the neckline
inverse of the up sloping of of the
bearish head and shoulders pattern has
to be flat or down sloping. Has to be
down sloping generally. Flat to down
sloping. And in this case, it is
kind of flat but slightly angled down.
So it's still valid.
So from there we had the nice breakout.
And the measured move takes us nicely to
seven 107.5. That actually coincides
beautifully with this high pivot from
the 11th of November of last year.
I can't believe it's already fall. It's
crazy.
But
head and shoulders pattern,
right? Up sloping neckline, bearish.
Inverse head and shoulders down sloping
neckline is bullish. Now the question is
how do you play these things? How do you
play head and shoulders patterns? Are
they different than trend lines or is it
just trend lines?
Well, it's pretty much the same thing as
trend lines in that
you know, you can enter on either a
break of the neckline or on a retrace
back to the neckline. Same thing down
here for this inverse head and shoulders
pattern. You can enter either on the
break up
or on a retrace back to that neckline
looking for that move higher on the
inverse head and shoulders patterns.
All right.
And there are head and shoulders
patterns on every single time frame. On
the daily, the weekly, the hourly, the
10-minute, the 1-hour,
tons and tons of head and shoulders and
inverse head and shoulders for you to
potentially trade. You just got to look
at the charts, right?
Chances are there was a head and
shoulders pattern at some point. But
with that being said, guys, that's all I
have for you today. My name again is
Lawton Ho here with Verified Investing.
Thank you guys so much for tuning in and
watching. It means so much to me. Please
like this video, comment, subscribe.
Give me more ideas, guys. Give me more
content you want to see. And please
don't just throw out stock tickers
um
>> [snorts]
>> because that's that's not helpful for me
to to come up with different TA
opportunities to teach all of you guys.
All right. With that being said, I hope
you have a wonderful rest of your day
and I'll see you all tomorrow. 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
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