Probability underlies all prediction. Through skilled observation or system-driven signals, technicians anticipate future price movement and enter trades they hope will profit from it. But the most common price patterns often fail to act as expected. Look to the edges of these rogue formations to identify trigger points where price signals a break in the low-odds, high-profit direction. One obvious example can be seen in the unexpected Tellabs rally after it drew a recognized reversal formation.

The classic Head and Shoulders reversal has been subject to intensive study over the last century. In fact, one popular investigation discovered this well-known pattern works only 79% of the time. While this figure lies well outside random outcome, it illustrates just how wrong you might be the next time you sell short at the H &S neckline.
 

Think Contrary: Sell short at the Head and Shoulders neckline? That classic TA advice got traders into major trouble in early 1999 on TLAB. When price rose beyond the level of the right shoulder, the pattern failed and smart traders prepared for low-risk long entry. The break at the tops of the head and right shoulder signaled confirmation AND also offered an easy pullback trade.