Head and Shoulders Pattern

What the Head and Shoulders pattern means

The pattern shows buyers making a final, failed push to new highs at the head, then failing to reclaim that level on the right shoulder. When price breaks below the neckline that connects the two intervening lows, control has shifted to sellers and the prior uptrend is likely over.

How the Head and Shoulders is traded

• →Wait for a close below the neckline as confirmation before entering short or exiting longs.
• →The measured target is roughly the distance from the head to the neckline projected down from the break.
• →Place the stop above the right shoulder, since a move back there invalidates the pattern.
• →A neckline break on rising volume is more reliable than a quiet one.

Common mistakes

• ✕Shorting before the neckline actually breaks, when the pattern can still fail.
• ✕Ignoring the prior trend and calling random three-peak shapes a head and shoulders.