Head and shoulders pattern

The head and shoulders chart pattern is a popular and easy-to-spot pattern in technical analysis that shows a baseline with three peaks, the middle peak being the highest. The head and shoulders chart depicts a bullish-to-bearish trend reversal and signals that an upward trend is nearing its end.

The pattern appears on all time frames and can, therefore, be used by all types of traders and investors. Entry levels, stop levels, and price targets make the formation easy to implement, as the chart pattern provides important and easily visible levels.

Formation of the pattern
i. Left shoulder: Price rise followed by a price peak, followed by a decline.
ii. Head: Price rise again forming a higher peak.
iii. Right shoulder: A decline occurs once again, followed by a rise to form the right peak, which is lower than the head.

Formations are rarely perfect, which means there may be some noise between the respective shoulders and head


How to trade the head and shoulders chart pattern?

i. wait for the break and retest of the neckline
ii. your stop is just above the right shoulder and
iii. your target is just the start of the first leg.

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