Nikkei 225 Head & Shoulder Chart Pattern Trading
This is a textbook two-phase trading plan that seamlessly transitions from a breakdown setup into a mean-reversion setup:
Phase 1: Short Trade (H&S + Bearish Engulfing)
Macro Context: The rally from the Sep 18 Gap Up Fib completed its full expansion at the 423.6% level (70,282), topping out at 71,510 (Head peak).
Pattern & Signal: The Oct 6 Head & Shoulders completed with a Bearish Engulfing candle signaling initial distribution.
Execution & Risk:
Entry: Triggered on the break below the low of the Bearish Engulfing candle.
Stop Loss: 1 tick above the Bearish Engulfing high (defining tight, objective risk).
Target Exits:
TP1: 100% H&S Fib (~69,755) — Neckline breakdown level.
TP2: 161.8% H&S Fib (~68,670) — Full expansion target.
Phase 2: Long Reversal Trade (NX / Hammer at 161% ABN-D)
Macro Context: Because price moved in an ABN-down (abnormal drop) straight into the 161.8% Fib target (68,670), the market became stretched, creating a high-probability exhaustion/pause zone near 68,308.
Pattern & Signal: The completion of the HM (Harmonic) formation and a clear Hammer candle formed right at this extreme extension.
Execution & Risk:
Entry: Triggered when price broke above the high of the Hammer candle (Asia open).
Stop Loss: Below the Hammer candle low.
Target Exit: 1.5R (1.5x the risk of the Hammer range).
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