Head and Shoulders Pattern: Bank Nifty 06/01/2025

Head and Shoulders Pattern: Bank Nifty 06/01/2025

Levels ::

Left Shoulder High (LS): 51,300
Head High: 51,700
Right Shoulder High (RS): 51,300
Neckline Level: 51,050

Step-by-Step Breakdown of the Trade

Pattern Formation:
The Bank Nifty chart showed a clear Head and Shoulders pattern:

The left shoulder peaked at 51,300 before retracing to the neckline.
The head formed a higher peak at 51,700, followed by a retracement.
The right shoulder formed a lower peak at 51,300, confirming weakening bullish momentum.
Breakdown and Retest:

The price broke below the neckline at 51,050 and closed lower, confirming the bearish breakout.
A subsequent retest of the neckline at 51,026 validated the resistance.

Measuring the Target:

Pattern Height: Head (51,700) - Neckline (51,050) = 650 points.
Target Projection: Neckline (51,050) - Pattern Height (650) = 50,400
.
Volume Confirmation:

A significant spike in volume accompanied the breakdown, adding credibility to the bearish move.

Trade Setup:

Entry: Sell Below 50,950 (after the neckline breakdown).
Stop Loss: Above the Retest Level: 51,100.
Targets:
Target 1: 50,700 (intermediate support).
Target 2: 50,400 (pattern projection).

Risk-Reward Analysis:

• Entry: 50,950
  *Stop Loss: 51,100 (150 points risk)
  *Target 1: 50,700 (250 points reward, 1:1.6 RR)
  *Target 2: 50,400 (550 points reward, 1:3.6 RR)

Execution Plan:

Monitor the price action for continuation below 50,950.
Ensure selling volume remains strong.
Place a stop loss at 51,100 to mitigate risk.
Book partial profits at Target 1 (50,700) and let the remaining position run to Target 2 (50,400).

Key Takeaways:

The Head and Shoulders pattern is a reliable bearish reversal signal when confirmed with volume and retests.
Proper risk management with stop-loss placement above the neckline is critical.
Monitor key support levels (like 50,700) for partial profit booking.
Conclusion: The Head and Shoulders pattern on Bank Nifty offers a high-probability short trade setup. By combining technical analysis with volume confirmation, traders can execute the trade with confidence. Always ensure proper risk management to protect your capital.

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