Head and Shoulders
Last updated
Last updated
Head and Shoulders signals a possible trend reversal. Price forms three peaks: a left shoulder, a higher peak (the head), and then a right shoulder at about the same level as the left. A break below the neckline can mean the uptrend is fading. The inverse version (Inverted Head and Shoulders) points to a potential bullish reversal.
Left Shoulder. Price makes a peak, then pulls back.
Head. A higher peak forms, then price dips again.
Right Shoulder. Price rises once more but doesn’t beat the head.
Neckline. Draw a line under the two dips for the standard version (or above the two peaks for the inverted version).
Entry: wait until price closes beyond the neckline.
Stop: place it above (for a Head and Shoulders) or below (for an Inverted Head and Shoulders) the last shoulder.
Target: measure the distance from the head down to the neckline. Project that distance from the breakout point.
Check volume for a spike on the break. That can confirm a real shift in momentum.
Keep an eye on other signals or indicators to see if they align with the pattern.
Avoid forcing the pattern if the peaks or dips are sloppy.
Go through historical data on your charting platform. Find at least one Head and Shoulders and one Inverted Head and Shoulders. Draw the neckline. Pretend you enter after the breakout. Decide where you’d put your stop and where you’d aim for profit. Advance the chart to see how the setup would have played out. Record any differences in volume or volatility and compare results across different markets.
