Does The Head & Shoulders Formation Work? by Martin Boot
Rarely will you come across a technique that detects an
imminent change in trend, but hereís a method that can
help you do just that.
The head and shoulders pattern has
long been considered one of the most
reliable in technical analysis. That
should mean that more often than
not, every trader can make high
returns on their holdings.
Unfortunately, itís not that simple.
I am engaged in a major research project involving
statistical analysis of 8,513 New York Stock Exchange
(NYSE) and Nasdaq stocks over a four-year period. I
test well-known technical indicators as well as technical
patterns, and the results have been revealing. They
seem to be more in sync with daily trading practices
than other results I have found in the literature. Recently,
I completed my study of the well-known head and
shoulders pattern, which is considered to indicate and
even predict a change in trend. Here are the results.