An interesting bearish scenario here on silver that I spotted today. It appears a classic head and shoulders pattern is forming on the daily chart – a major market structure reversal pattern.
The good head and shoulder patterns form on top of a big rally, and as we can see here to the left, there was a strong up move into the head and shoulders pattern – emphasizing this as a potential medium to long term ‘topping pattern’.
There are a lot of compelling reasons to be bearish here, there is a strong weekly trend line structure, and also a strong resistance level that the pattern formed under.
An inside day has formed as the final shoulder was printed here. It’s great when price action signals align with market structure patterns because we can use them to build the frame work of our trade.
Inside days are breakout catalysts, so if the low of the inside day is broken – it will mean the neckline will be broker, triggering the head and shoulders pattern shorts, and the inside day breakout.
I am very interested in this one, but I will hold off until the US session opens before setting breakout orders to avoid getting caught in any potential fake outs.