Technical traders may be interested in the fact that Friday’s strong rally in commodity prices looks like setting BHP up for a head and shoulders buy today.
A successful head and shoulder set up here looks as though it could lead to a corrective rally in BHP.
The strategy outlined on the chart above would be one approach to the head and shoulders pattern from a medium term trader’s perspective. It involves:
- Buying on a confirmed break above the neck line (some may wait for a close above this level as confirmation
- Setting an initial profit objective based on the “measuring technique”. This measures the distance from the “head” to the point on the “neckline” vertically above the head. This distance is then projected from the point on the neck line where price breaks out.
- Placing an initial stop loss under the minor support at the dashed red line
- Moving the stop up behind any successful re- test of the neckline
- Starting to trail the stop higher once price reaches 61.8% of the distance from the neck line to the profit objective.