Head and Shoulders Pattern
A reversal pattern consisting of three peaks, with the middle peak (head) being the highest.
Plain English Explanation
Head and Shoulders is the most reliable reversal pattern. It signals that an uptrend is ending and a downtrend may begin.
**The anatomy:**
- **Left Shoulder:** First peak, pullback
- **Head:** Higher peak (the highest)
- **Right Shoulder:** Lower peak, roughly equal to left shoulder
- **Neckline:** Support connecting the two troughs
**How it unfolds:**
1. Uptrend makes a high (left shoulder)
2. Pulls back, rallies to a higher high (head)
3. Pulls back again, rallies but fails to match head (right shoulder)
4. Price breaks below the neckline = SELL SIGNAL
**Inverted Head & Shoulders:**
- Same pattern flipped upside down
- Appears at market bottoms
- Signals bullish reversal
**Measuring target:** Distance from head to neckline, projected down from breakout point.
How It Works (Technical)
The pattern shows distribution as smart money sells into strength. The inability to make a new high on the right shoulder shows weakening momentum. The neckline break confirms the reversal.
When It Works Best
- After extended uptrends (or downtrends for inverse)
- Higher timeframes (daily, weekly)
- With volume confirmation (decreasing on each shoulder)
- At major resistance levels
- When market sentiment is shifting
When It Fails
- Choppy markets with no clear prior trend
- Without proper volume pattern
- If neckline isn't clear
- On very short timeframes
- When forced onto every chart
Common Beginner Mistakes
- 1Seeing H&S everywhere (it's rare on higher TFs)
- 2Trading before neckline breaks (too early)
- 3Ignoring the volume pattern
- 4Not measuring the target correctly
- 5Ignoring the prior trend (must be a clear uptrend first)
Pro Tips
- Wait for neckline break with above-average volume
- Neckline retest often provides second entry
- Measure target from head top to neckline
- Slanted necklines still work
- Combine with divergence on RSI/MACD
Related Topics
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