Trade Checklist: Head and Shoulders

For inverted head and shoulders, just do everything here upside down.

Use this end-to-end checklist to plan and execute a single high-probability Head and Shoulders short. Follow every step. Terms link to the Glossary and supporting modules.

• Timeframes: trade between M15 and Daily. Weekly is the absolute max; never go below M15.
• Instruments: FX majors/minors, indices, commodities, selected stocks. Crypto requires extra caution and wider spreads.

1) Pre-Trade Safety: Economic News Filter news.md

• Filter a reliable calendar for the instrument you plan to trade; include central-bank decisions, CPI, NFP, and earnings.
• 15-min setups: block trades within 3 hours of any relevant two- or three-star release.
• H1/H4 FX: focus on three-star/red events; build an 8-hour no-trade window before/after the release. Two-star events can generally be ignored on H1+ (they get "soaked up" by the larger timeframe). Exception: if a two-star is a current "hot topic" (e.g., inflation), treat it like three-star.
• Stocks (H1/H4): avoid trades 48 hours before/after earnings for the underlying company or sector bellwethers.
• USD three-star events affect virtually everything - not just USD pairs. If there's a big US release coming, it will likely affect all currency pairs, commodities, and indexes.
• EUR events often affect GBP and CHF as well (they're correlated).
• When a significant release is approaching and you are already in a trade, follow the manual-close rule: flatten before the event—spreads will widen and slippage is common.

2) Prepare Chart: Weekly Trend Lines & Macro Roadblocks (roadblocks.md)

• Open a weekly chart, zoom out 10–20 years, and draw all meaningful trend lines through pivot highs/lows; extend them to the right.
• If any weekly trend line sits between your intended entry and Pattern Completion Level (PCL), skip the trade.
• While on the higher timeframe, note historical support/resistance zones that have produced multiple reversals; mark them for Step 12.

3) Assess Previous Price Action (ppa.md)

• Define the PPA window: from the projected PCL up to the start of the left shoulder.
• Confirm you have a decisive, clean bullish impulse leading into the head. Choppy or sideways action weakens the pattern—walk away if price meanders.
• Map historical support and resistance between the neckline and PCL; each level with ≥3 touches (acting as both support and resistance) is high risk.
• Identify any inefficient candles in the target path. Large unsquared candles beyond the neckline often act as magnets; those sitting between entry and target can become roadblocks.

4) Confirm Pattern Structure (entry-signal.md)

• Sequence must read: higher highs/higher lows into the head, followed by a lower high (right shoulder). If price prints a high above the head, the setup is invalid.
• Shoulders should be broadly symmetrical; if a new higher shoulder forms after the right shoulder, redraw the neckline and reassess from scratch.
• Reject setups showing conspicuous anti-entry patterns (e.g., bullish pin bars) immediately before the bearish entry signal.
• Only one obvious rogue wick per shoulder can be ignored; otherwise treat it as noise and pass.

5) Validate Timeframe and Candle Count (appropriate-time-frame.md)

• Anchor at the bottom of each shoulder body: extend a horizontal line left to find candle #1; extend through the right shoulder body to mark the last candle before the break.
• Count bodies between those anchors; acceptable lengths:
  • M15 & H1: 30–120 candles
  • H4: 30–180 candles
  • Daily: 30–210 candles
• Too few candles → drop one timeframe (never below M15). Too many → step up one timeframe and reassess the entire pattern.

6) Draw and Validate the Neckline

• Connect the lows of the left and right shoulders with a horizontal or gently sloping line; extend it right.
• Confirm the neckline runs through candle bodies, not wicks. If you must cut through multiple bodies, the pattern is sloppy—pass.

Break of Structure Requirement (Personal Theory)

Note: This rule is a personal theory developed from analysing my own trade results, not from the course instructor. Use at your own discretion.

There must be a Break of Structure (BOS) before entering the trade.

For H&S short, BOS means a lower low. This can be achieved by:

1. The right neckline anchor point being lower than the left (Quasimodo - favourable neckline), OR
2. The break and close being lower than the right neckline anchor point (acceptable), OR
3. The break and close being lower than both neckline anchor points (ideal)

For iH&S long, BOS means a higher high. This can be achieved by:

1. The right neckline anchor point being higher than the left (Quasimodo - favourable neckline), OR
2. The break and close being higher than the right neckline anchor point (acceptable), OR
3. The break and close being higher than both neckline anchor points (ideal)

The Ideal Trade (H&S Short Example)

The best H&S short setup has:

1. Break and close below BOTH neckline anchor points - confirms BOS
2. Strong, forceful retest that pushes back above the neckline but stays below the right shoulder - creates a lower high
3. Entry candle appears immediately after the retest - shows conviction

Ideal H&S Short:

     Head
      /\
     /  \
    /    \    Right Shoulder (lower high)
   /      \      /\
  /   Left \    /  \    ← Retest (below shoulder, above neckline)
 /   Shoulder\  /    \
/      /\     \/      \
      /  \             \
─────/────\─────────────\──── Left NL anchor
            ─────────────\─── Right NL anchor
                          \
                           \  ← Break & close below BOTH anchors (BOS)
                            \
                             → Entry candle after retest

Grading System

Grade B Requirements

If the break only clears the right neckline level (Grade B), require BOTH:

1. A strong retest - forceful move back that still produces a lower high (H&S) or higher low (iH&S)
2. A strong entry candle - large body, decisive close, appearing immediately after the retest

Elimination Rules

Eliminate (do not trade) if:

1. No BOS - right anchor and break are both on the wrong side of the left anchor
2. Consolidation forming - the H&S pattern formed with strong, forceful waves, but after the break price action changes into weak, choppy consolidation rather than continuing with momentum

If there is no BOS, pass the trade.

7) Wait for Break, Close, Retest (bcr.md)

• Do not plan an entry until price breaks, closes beyond, and retests the neckline.
• Retest must at least touch the neckline; deeper retests that stay below the right shoulder high are acceptable and improve R:R.
• If price tags the projected PCL before the retest, the pattern is invalid for trading purposes.

8) Confirm Entry Setup Candle (entry-signal.md)

• After the retest, require one of the approved bearish setups: pin bar, engulfing candle, or tweezers satisfying the module rules (body ≤50%, wick orientation, engulfing close ≥75%/≤25%, etc.).
• If a bullish candle closes above the bearish setup before you enter, that setup is invalid—wait for a new pattern or skip the trade.
• Multiple valid bearish setups clustered near the retest add confluence; still pick the cleanest one for measurement.

9) Define Entry Level (entering-the-trade.md)

• Default: place a sell-stop just below the low of the confirmed setup candle − half spread (you sell at bid = mid - half spread); market entries are acceptable only if you can execute immediately on a neckline break.
• For inverted H&S (long): entry = just above setup candle high + half spread (you buy at ask = mid + half spread).
• Record entry, neckline level, and spread in your journal; charts display mid price (halfway between bid and ask).

10) Place the Stop Loss (SL)

• Choose your protection style:
  • Conservative: just above the head
  • Aggressive: just above the right shoulder
  • Super aggressive: just above the setup candle
• H&S short: add half spread to SL (SL triggers when ask hits level = mid + half spread).
• Inverted H&S long: subtract half spread from SL (SL triggers when bid hits level = mid - half spread).
• Ensure the SL distance still delivers positive R:R (>1:1). If even the super-aggressive SL yields <1R to target, skip the trade.

11) Compute PCL and Take Profit (pattern-completion-level.md, sl-and-tp.md)

• Measure vertically from the head high (body; you may ignore one rogue wick) down to the neckline: that is 1R.
• Project the same distance below the neckline to plot the PCL. Draw a horizontal line and extend it left to confirm price has previously traded that zone via candle bodies; if not, ditch the setup.
• H&S short: Set TP = PCL + half spread (TP triggers when ask hits level = mid + half spread).
• Inverted H&S long: Set TP = PCL − half spread (TP triggers when bid hits level = mid - half spread).
• If a strong S/R zone sits closer than PCL yet still yields ≥1R, target that level instead.

12) Roadblocks & Inefficiencies Review (roadblocks.md, ppa.md)

• Re-check weekly trend lines plus intra-timeframe horizontal S/R between entry and TP; any level within <1R distance must be treated as a roadblock.
• Identify inefficient candles between entry and PCL. If one is very near entry there is high reversal risk → pass; if it lies beyond PCL, plan optional partials at PCL and a runner toward the inefficient candle’s midpoint.

13) Position Sizing and Orders (entering-the-trade.md)

• Risk ≤1% per trade (0.25% recommended for newer traders). Use a position-size calculator with the precise SL distance (including spread).
• Fill in order ticket: entry, SL, TP, volume. Save screenshots/notes for journaling before the trade triggers.

14) Final Sanity Checks

• News blackout window confirmed? (Section 1)
• Weekly TL / major S&R clear between entry and TP? (Sections 2 & 12)
• Clean impulse into the pattern and acceptable candle count? (Sections 3 & 5)
• Neckline, BCR, and entry candle validated? (Sections 6–8)
• SL, TP, and R:R double-checked with spread adjustments? (Sections 10–11)
• Orders placed and journal updated? (Section 13)

15) Manage and Exit (letting-the-trade-run.md, when-to-manually-close-the-trade.md)

• After entry, step back: double-check SL/TP once, reassess roadblocks, then leave the trade alone.
• Track the "x-candle" timeout: count the candles spanning the neckline between the shoulders; if the live trade prints x candles after the break without touching TP or SL, close it manually.
• Close trades ahead of high-impact news (Section 1), during the spread hour if price sits within ~50 pips of SL, or before weekends on sub-H4 setups.
• If price stalls at a pre-identified S/R level, move SL to breakeven, watch 1–3 candles, and exit on strong rejection.

16) Divergence Confluence (divergence.md)

• Monitor oscillators such as RSI for divergence: when the indicator posts higher highs/lows while price makes the opposite, momentum is fading.
• Classify the signal (regular vs. hidden); both are valid, but hidden divergence can mark continuations inside the shoulder structure.
• A bearish divergence that stretches into the head adds confidence to the short; the longer the window and the farther apart price/oscillator peaks end, the stronger the signal.
• If divergence is meaningful, note it explicitly in the checklist/journal and consider scaling risk modestly (still within the 1% cap).
• Keep studying the Academy divergence module/video so the pattern recognition stays sharp.

17) Inefficient Candle Plan (inefficient-candles.md)

• Flag any oversized candle that has not been squared up (price never revisited its 50% level). The candle before or after it can perform the square-up.
• When an unsquared candle sits a little beyond your PCL, consider nudging the take-profit closer to its midpoint to capture the magnet effect without overreaching.
• Treat unsquared inefficiencies as targets that can extend R:R, but only if intervening resistance levels stay clear; roadblocks ahead still cap the trade.
• Never push TP past an identified resistance/support just to chase the inefficient candle—consistent execution beats squeezing every pip.

Ultra-Compact Checklist

• News window clear (3h on M15; 8h on H1/H4 FX; 48h pre-earnings for stocks; USD 3-star affects everything)
• Weekly trend lines + PPA assessed; no blocking S/R between entry↔PCL
• Valid H&S anatomy (lower right shoulder, no highs above head) with correct candle count
• Neckline drawn and direction assessed (if against trade → require strong BCR + convincing entry candle)
• BCR complete; approved bearish setup printed
• Entry = setup low − half spread (short) or setup high + half spread (long)
• SL above head/shoulder + half spread (short) or below + half spread subtracted (long)
• TP = PCL + half spread (short) or PCL − half spread (long); or nearer S/R ≥1R
• Roadblocks and inefficient candles reviewed; positive R:R confirmed
• Position size ≤1% risk, orders staged, journal updated
• Management plan ready: x-candle timeout, news/spread/ weekend rules respected