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. Close positions if the event becomes imminent.
  • Stocks (H1/H4): avoid trades 48 hours before/after earnings for the underlying company or sector bellwethers.
  • 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.

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; market entries are acceptable only if you can execute immediately on a neckline break.
  • Record entry, neckline level, and spread in your journal; double-check that the order aligns with broker conventions (charts display bid pricing).

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
  • Always add the full broker spread when placing SLs above price (because stops buy-to-close at the ask).
  • 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.
  • Set TP above the bid-side PCL by spread + 1 pip to accommodate the buy-to-cover execution. 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)
  • 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; BCR complete; approved bearish setup printed
  • Entry = setup low sell-stop; SL above head/shoulder (add spread); TP = PCL − spread − 1 pip (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