Free Trading School · Level 8: Chart Patterns
Head and shoulders
The head and shoulders is one of the best-known reversal patterns. In an uptrend, price makes a peak (left shoulder), a higher peak (head) and then a lower peak (right shoulder). The lows between them form the neckline. A close below the neckline signals that the uptrend has broken.
Head and shoulders top with its neckline. The inverse version marks bottoms.
What the pattern shows is a change in structure: the right shoulder is a lower high, the first sign that buyers can no longer push to new highs. The break of the neckline adds a lower low. Together, that is the definition of a new downtrend.
- Target: the distance from the head to the neckline, projected down from the break.
- Stop: above the right shoulder.
- Inverse head and shoulders: the same pattern upside down at the end of a downtrend.
Patterns are shortcuts for trend structure. A head and shoulders is simply a lower high followed by a lower low.
Quick answers
The head and shoulders is one of the best-known reversal patterns. In an uptrend, price makes a peak (left shoulder), a higher peak (head) and then a lower peak (right shoulder). The lows between them form the neckline. A close below the neckline signals that the uptrend has broken.
Patterns are shortcuts for trend structure. A head and shoulders is simply a lower high followed by a lower low.
Above the right shoulder. Above the right shoulder, the last lower high.
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