Improving the Methodology for Identifying the Head and Shoulders Pattern as the Basis for Developing Trade Strategies in the U.S. Stock Market

In this article, one of the most popular pattern in classical technical analysis-head-and-shoulders (H&S)-was studied. The aim of the work is to update the methodology of identification of the H&S pattern in order to increase its efficiency as the basis of trade (investment) strategy for the US stock market. The key objectives of the study were the following: to update and develop the methodology of identification of the H&S pattern, to back test the authors’ methodology of identification and formation of H&S, to give recommendations for investors concerning the usage of H&S investment strategies. The study used statistical analysis techniques, observation, analysis and synthesis of the information obtained. The information base for the study was the dataset of trade statistics of American stocks included in the SnP500 index for the period of 1990-2018. The authors systematized and analyzed such H&S identification parameters as the period of formation, the period of achievement of absolute and relative goals, the average value of price movement after pattern confirmation, etc. The results of the study show a high potential for the application of the H&S pattern as a basis for the formation of investment strategies in the US stock market.

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