The Ultimate Reversal Signal: Mastering Head and Shoulders Patterns

The King of Patterns: Head and Shoulders Top

This pattern depicts the process of distribution. It consists of three peaks:

Left Shoulder: High volume, strong rally followed by a dip.

Head: Price makes a new high, but volume is lower than the left shoulder, a warning sign.

Right Shoulder: Fails to reach the head's height, with significantly shrinking volume.

The Break: Price breaks the neckline (connecting the reaction lows), confirming the reversal.

The Bottom Difference

The Head and Shoulders Bottom is the inverse. However, there is a key difference: The upward breakout of a bottom must be accompanied by heavy volume. If the neckline break lacks volume, it might be false.

Measuring Targets

Once confirmed, the minimum price objective is usually equal to the vertical distance from the top of the head to the neckline, projected from the breakout point.