A Head and Shoulder pattern is a trend reversal pattern. It is also called Distribution / Accumuilation pattern. This can be qualified with the conditions of Head and shoulder as below.
Company: Deepak Fertilizers & Petrochemicals corp. Ltd.
Chart: Daily chart for 2 year period.
Conditions and Qualification of pattern:
1) There should be a strong prior trend – From the chart, there is an evidence of Bullish trend prior to this pattern.
2) There should be 3 consequtive tops where the middle one (Head) is higher than two others – Left and Right Shoulders – This is also qualified.
3) The duration of the total pattern should be minimum of 3 months. – The actual ios around 5 months.
4) The volume at LS should be higher and then it should decline in Head and RS zones. – It is noticed in the volume data that the difference in volume.
5) Short position can be initiated once the price breaks down after forming right shoulder.
6) Trend reversal is expected after testing Head and shoulder.
Trading plan:
Entry price: Rs.388 (When the price breaks the neckline downside after RS)
Stoploss: Rs. 482 (Peak of the Head)
Target: 294 (Considering 1:1 Rist to Reward)
Result: The target of Rs 294 achieved.
