Head and Shoulders Pattern

One of the most recognized and reliable chart patterns in technical analysis.

Structure

1. Left shoulder: Price rises to a peak, then declines
2. Head: Price rises higher than the left shoulder, then declines
3. Right shoulder: Price rises again but only to roughly the left shoulder level
4. Neckline: Connect the two troughs between the shoulders

Trading the pattern

• Entry: When price breaks below the neckline
• Target: Distance from the head to the neckline, projected downward from the breakout
• Stop loss: Above the right shoulder

Inverse head and shoulders

The bullish version appears at market bottoms with three troughs (the middle being the lowest). Same rules apply in reverse.

Reliability tips

• Volume should decline from left shoulder to right shoulder
• A strong break of the neckline with volume confirms the pattern
• Failed head and shoulders (price breaks back above neckline) can lead to powerful moves in the opposite direction