Head and Shoulders
A reversal chart pattern with three peaks where the middle peak (head) is higher than the two outer peaks (shoulders).
The head and shoulders is a reversal pattern of three peaks, with a higher head between two shoulders. A break below the neckline confirms a bearish reversal.
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
Head and Shoulders Example
Say GBP/USD tops at 1.2800 (head) between two 1.2750 shoulders, neckline at 1.2680. The break closes below the line, retests it from underneath and fails, then slides 150 pips. Textbook reversal, entry at the retest, stop above the shoulder.
How Traders Use Head and Shoulders
Wait for the neckline break plus the retest before committing full size. Measure the target from head to neckline projected down. Skip lopsided patterns: symmetry is what makes the crowd act together.
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