Traders tend to focus too much on timing the correct entry into a trade, but very few focus on developing a strategy to exit positions. If one sells too early, considerable profits are left on the table and if the position is held for too long, the markets quickly recover the profits. Therefore, it is necessary to identify and close a trade as soon as the trend begins to reverse.
A classic setup that is considered reliable for spotting a trend reversal is the head and shoulders (H&S) pattern. Over longer time periods, the H&S pattern doesn’t form frequently, but when it does, traders need to take notice and act accordingly.
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