Head and Shoulders
Refers to a specific visual pattern in price trends which chartists consider indicates a price trend reversal.
The head and shoulder pattern involves a rise in price for some time, which then peaks, likely as a result of profit taking causing the price to drop or level (the left shoulder of the pattern). The price then makes another steep rise, before more profit taking again causes the price to drop back down to the same level as the left shoulder (the head outline of the pattern).
At this stage a further modest rise or level off will indicate that a major fall is imminent, and a breach of the neckline is taken by chartists to indicate that it’s time to sell.Back to Glossary