The Head and Shoulders pattern described in Dr. Boot’s article can be easily implemented in the NeuroShell Trader by combining a few of the over 800 built-in indicators and the ZigZag indicator on which it is based. The ZigZag indicator is found in the Advanced Indicator Set extra cost add-on. We’ve done the combining of indicators for you and have created custom indicators that you can download from the NeuroShell Trader free technical support website. The custom indicators include the Right Shoulder, Head, Left Shoulder, Neckline and Current Slope from Right Shoulder.
After downloading the custom indicators you can easily insert them onto a chart as follows:
1. Select ‘New Indicator …’ from the ‘Insert’ menu.
2. Select the Custom Indicator category.
3. Select the indicator(s) of interest.
4. Change parameters if necessary and press the Finish button
The two conditions described in the article to identify a Head and Shoulders patterns can be created by creating the following indicators:
Condition #1 – To determine if a negative current slope and an H&S pattern (i.e., the second peak back is higher than the first and third peaks back):
AND3 ( A<B(CurrentSlopefromRightShoulder(…), 0), A<B ( RightShoulder(…), Head(…), A>B( Head(…), LeftShoulder(…) )
Condition #2 – H&S pattern and broken neckline.
AND4 ( A<B(CurrentSlopefromRightShoulder(…), 0), A< (RightShoulder(…),Head(…), A>B(Head(…),LeftShoulder(…), A<B(NeckLine(…),Close) )
Please note that the Head and Shoulders pattern is based on the ZigZag indicator. Because the ZigZag indicator identifies peaks and valleys by looking at future data values, the ZigZag indicator cannot be used in a Trading Strategy for trading into the future and should only be used for backtesting in the past. For this same reason, the Head and Shoulder indicator should only be used in a Trading Strategy for backtesting in the past.
Owners of our Fuzzy Pattern Recognizer add-on may want to experiment using fuzzy logic to find similar patterns.
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