The “Manikin”

Created by Jared Passey

Note: All examples and rules can be used in either upward or downward trends

Conditions:
The Manikin trade is a fine tuned method for trading the Head and Shoulders
chart pattern effectively. We will give step by step instructions and several good
examples. Below is the makeup of the basic head and shoulders pattern

Normally people trade this pattern after the neckline is broken by the Rt. Arm,
however there is not enough reward in the trade usually to justify the risk. To be
safe you need to place your stop loss up above the high point of the head, and if
you wait till it breaks through the neckline, you will probably have a negative
Risk/Reward ratio. The Manikin trade is designed to help you enter near the top of
the Rt. Shoulder instead. And this is how we do it.
First we need to find a partially formed head and shoulders pattern, the most
important thing is the right neck line. We are looking for the right neck line to
come down near the price level of the left or beyond.
 Check out the next example on an actual chart. You can see that the market has
come back down to nearly the neck line level. This is where we will start setting up
our trade.

As soon as we see the right neck line turn and head back up we will do a few
things to set up the trade. First we will place a horizontal line across the top of the
left shoulder. Second we will use the Equidistant Channel tool in MetaTrader to
place a trend line across the two points of the neck line and place the parallel
channel line on the top of the left shoulder. (If you don’t use MetaTrader then just
create parallel lines by copying the neck line.)

These two drawing objects will give you your entry zone for a short trade, the
market will usually retrace back to this zone and then drop to create the right arm.
Check out the chart below. Notice that our entry is placed within the range between
the two lines shown in blue. We should put a stop loss up above the head a few
pips and place a take profit down at least as much as your stop loss. Using
Fibonacci is a good way to help determine where to place your take profit levels. If
you believe that this head and shoulders is the end of a retracement from a larget
trend then you can stay in longer and ride the next wave down for some serious
profit.

Let’s check out some other examples. In this pattern we find that the right neck
point is lower than the left making our entry below the left shoulder level, these are
awesome trades because the lower low signifies that we are really in a downward
move. Some people only take Manikin trades when the right neck point is below
the left, it does increase the probability of winning, however you will find fewer
trade opportunities.

The next chart is another great example of a Manikin trade, this one shows us
that some times we need to be patient for the market to get to our TP.
 I hope this was clear and helpful to you, and I wish you good luck in your
trading.

Jared Passey

www.LotsOfPips.com