Technical

Head and Shoulders

A reversal chart pattern with three peaks where the middle peak (head) is higher than the two outer peaks (shoulders).

Definition

The head and shoulders is one of the most recognised reversal patterns in technical analysis. It forms at the end of an uptrend and consists of three peaks: a left shoulder, a higher head, and a right shoulder roughly level with the left. The neckline connects the lows between the peaks. A break below the neckline confirms the pattern and signals a bearish reversal. An inverse head and shoulders at the bottom of a downtrend signals a bullish reversal.

How It Works

Left shoulder forms as price makes a high, pulls back, then rallies to a higher high (the head)
Right shoulder forms when price rallies again but fails to reach the head's height
The neckline connects the two pullback lows and can be horizontal or slightly sloped
Pattern is confirmed when price breaks below the neckline on the close
Target: distance from head to neckline, projected downward from the breakout point

Trading Tips

Wait for the neckline break before entering. Many head and shoulders patterns fail during formation.

A retest of the neckline from below after the break often provides a lower-risk entry

Volume declining on the right shoulder and expanding on the neckline break increases reliability

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