The 3 Most Reliable Price Action Patterns (part three)

A recent study by Cody Hind (2020), tested 10 years of data and over 200,000 trading patterns, in order to evaluate their reliability. Hind included in the study only those price action patterns considered to be ‘complete’, which means they fully broke a support/resistance area or trendline.

Hind’s evidence showed that the Head and Shoulders Pattern is the most reliable pattern, with a success percentage of 83.04% and the Inverted Head and Shoulders Pattern with a percentage of 83.44%.

Therefore, the Head and Shoulders patterns are statistically the most accurate of the price action patterns, reaching their projected target almost 85.0% of the time. The regular Head and Shoulders pattern is defined by two swing highs (the shoulders) with a higher high (the head) between them. The inverted head and shoulders pattern has two swing lows with a lower low between them. The two outer swing highs/lows don’t have to be at the same price, but the closer they are to the same area the stronger the pattern generally becomes.
The pattern is considered complete when price breaks through the “neckline” created by the two swing low points (regular Head and Shoulders), and the two swing high points (inverted Head and Shoulders). This line may be horizontal, but it can also be sloped as the swing points do not have to be exactly the same to have a completed pattern. These patterns are considered ‘complete’ when price breaks out from the neckline and moves a distance equal to the distance from the neckline to the head of the pattern.

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