so how do you know when the stock market is going to reverse in this video I'm
going to go over how to use a Head & Shoulders reversal pattern and give you
a live example of a trade I'm currently in which is up over 500 dollars in just
a few hours hey how's it going on this channel you will learn the steps I took
to go from trading with a full-time job to trading as a full-time job so if
you're new here consider subscribing and today we're gonna over market reversals
so the basic idea behind a marker reversal is that the simple fact that
the trend is changing and so that can be going from an uptrend to a sideways
trend or an uptrend to a downwards trend or any other kind of trend change and
there are key factors to determining and being able to spot when this is going to
happen with the simple idea of an uptrend causes higher highs and lower
lows and then when you see that shift to making lower lows and lower highs that
is essentially a basic reversal of going from a upwards trend to a downwards
trend reversal patterns are just easy ways to recognize when these reversals
are happy with this trend that I just drew right here it's going from upwards
trend to a downwards trend and this kind of trend change actually makes a classic
pattern called a Head & Shoulders and so that is shown by the three peaks up here
this is one shoulder and this is the head and then we have on the right side
the other shoulder and the idea is as a top forming pattern because it forms the
top of this trend right here that we drew and it signals that a reversal
could be coming and you can use this pattern to spot these reversals easily
how a head and shoulder works is it has the two shoulders and the head and
between these two shoulders it makes what is called a neckline and that can
be drawn by just drawing a line between the
two peaks right here and that is where the stock or just the market will create
a support level once it breaks this neckline over here that is formed by
that support line that we can drop previously is it signals that the
reversal is confirmed and that it is likely that the stock is going to start
on a new trend and in this case it would be a downtrend
another quick way we can confirm or if you missed the initial break of that you
can see that on the right over here it came up and tapped that neckline again
and that neckline now was resistance level and you can see that the stock
began to sell off from that point again the main idea behind these patterns is
that it's just an easy way to recognize that the stock started to make a lower
low here and then it also made a lower high here which is showing you that the
stock is not in that same trend before of making higher highs and lower lows
but it is now starting to make lower lows and lower highs which gives you a
key insight that the stock could be reversing now and changing the trend so
if you were betting that the stock was gonna go up and you had a previous
position on this would be a good time to close out your position with idea that
this stock could start a huge downtrend now and you don't know when the bottom
of that could be so to give you a more concrete example we're gonna look at the
Nasdaq on a two-hour chart and in the beginning you could see that this chart
was trending really well with making higher highs and higher lows and even as
the changes in the chart weren't getting as significant the lows weren't getting
that much higher and the highs weren't getting that much higher it was still in
that trend and then as we started to get to the right side of this we can start
to see that a head and shoulders started to form and with that neckline being
about here we can see that the chart went from
making those higher highs and higher lows to about here it started to make a
lower high that shows us that the trend is beginning to reverse and we don't
know that the trend is gonna change from a upwards trend to a downward trend as
sharply as it did here but the idea is that we know that the trend is gonna
change or it's possible that it changes it could just start doing a sideways
trend and if we had a position on maybe we wouldn't lose any money the idea is
that the potential for the upside gains that maybe we were looking for before
when the stock was more on the left side of the chart they aren't there anymore
the risk is a lot heavier to the downside and so we want to trade
accordingly to that by either closing out our positions that are betting that
the market is going to go up or putting positions on betting that the market
might go down for this chart as you see once it broke that neckline compared to
the drawing I had before it never came up and tapped that neckline as
resistance it just sold off really sharply and if we had a trade on that
was betting that the market was gonna go long at this point we would just want to
cut our losses when we saw it break this zone or if we saw that we could have
just put a bet on that the market was gonna go down one thing I want to stress
is don't trade these patterns alone they are strong patterns and can give good
reversal signals you want to have them as confirmation with other factors you
never want to trade with just having one thing to tell you that the market is
going to reverse you want to have a few things that you generally use telling
you that the market is going to reverse with that being big resistance levels or
maybe some moving average indicators it doesn't matter what you use but you want
more than just the pattern alone because it'll make your trading strategy a lot
more profitable and consistent now let me walk you through a trade I'm
currently in using the head and shoulders pattern as a catalyst now what
I'm doing is a little more advanced than just looking at the
chart and seeing the head and shoulders pattern what I'm actually doing is using
the head and shoulder pattern on a inverse asset of what I'm trading what I
mean by that is the chart I have right here that you can see this head and
shoulders pattern on is called the VIX or the volatility index of the market
and all it does is track the volatility of the market but essentially how it
works is if the market goes up the VIX goes down and if the VIX goes up the
market goes down so I think the market isn't gonna go up and I see this head
and shoulder pattern in the VIX indicating that the VIX has a high
chance of going down and hopefully going down all the way down here to back to
where it was before that that will give a strong catalyst for the market to go
up when I got into the trade the VIX was trading at about this point just a few
hours ago I saw this pattern about to break and even though that I don't know
that it's about to break I was seeing strong indicators in the actual asset
that I was trading which was the stock market or the Dow Jones Industrial
Average and this is just a catalyst to help confirm my trade idea and that the
idea that the stock market will go up and it's worse than betting my money
against that to show you what that trade actually looks like on the asset that
I'm trading here's the Dow Jones Industrial Average and this is where I'm
actually betting my money on I'm not betting my money on the VIX going down
I'm betting my money on the Dow Jones going up that head and shoulders pattern
in the VIX was just a catalyst to help me confirm that I think that this asset
the Dow Jones is gonna go up I only put this trade in a few hours ago and with
that head and shoulders pattern barely beginning to break I'm already up over
$500 on this trade over just the last three hours
once that VIX starts to really come down from that Head and Shoulders pattern
this market right here will start to skyrocket up here and I will be able to
get the full benefits of that Head and Shoulders pattern
and the Dow Jones breaking out of this resistance level that I have here and
that's more of what I'm basing my trade off of the main idea here is that I am
just using the Head & Shoulders pattern with my trading strategy it isn't my
trading strategy alone you want to use it as a catalyst not as the key
ingredient to your trading strategy I'm sure you could base a trading
strategy around Head & Shoulders patterns but you want to have multiple
factors going into a trading strategy and when you execute your trades you
don't just want to have one reason why you're getting into a trade it usually
doesn't make for a high probability chance of success hey thanks for trying
on this video if you wanna learn more about the stock market and how to do
trades like I just showed you make sure to hit that subscribe button and if you
have any questions on the trade I just showed you or any reversal patterns in
general make sure to ask them in the comments below and as always if you
liked the video please hit that thumbs up