Head and Shoulders Pattern

Learn to recognize and trade a head and shoulders pattern through interactive charts.

What is a head and shoulders pattern?

A head and shoulders pattern is a bearish reversal pattern, which marks the end of an uptrend and the beginning of a downtrend.

Download our free chart patterns PDF for a guide to 20 classical chart patterns with over 100 interactive charts, also on TradingView.

Duration

A head and shoulders pattern can occur over various time frames.

Characteristics

A head and shoulders pattern contains three successive peaks. The highest peak is called the head. The two outside peaks are called left and right shoulders.

  1. This pattern requires a strong prior uptrend.
  2. Left shoulder: the price forms a peak in the current uptrend, before retracing to trend. This completes the formation of the left shoulder.
  3. Head: the price rises again from the trough of the left shoulder, and reaches a new high that marks the head. After peaking, the price falls back to the trough of the left shoulder. The line connecting both troughs is called the neckline.
  4. Right shoulder: the price rises again from the neckline but is unable to establish a new high, as sellers outnumber buyers. The price retraces back to the neckline, completing the right shoulder. While symmetry is preferred, it is not mandatory.
  5. Neckline: the neckline can be horizontal, downward sloping or upward sloping. A Head and Shoulders pattern is always bearish, but one with a downward sloping neckline is even more ominous.

Trading volumes

A head and shoulders pattern points to a loss of momentum. It usually occurs after a strong and long lasting uptrend. This is why volumes often decline in the period leading up to the pattern.

Head and shoulders trading tips

A convincing close below the neckline completes the head and shoulders pattern. Some traders wait for an unsuccessful re-test of the neckline before opening a short position. This means waiting for the neckline to act as a resistance, rather than support. You may want to wait for several closes below the neckline, rather than acting on the first.

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I'm St├ęphane, a trader and an entrepreneur. My mission with TrustedBrokers is to help you find the right broker for you, whether you're a beginner or a pro. I've personally used and tested the brokers on our service, opening and funding real-money accounts, contacting customer service and placing trades. I started my career in investment banking in London.

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