A reversal pattern consisting of three peaks: a higher middle peak (head) between two lower peaks (shoulders).
Deep Dive
The head and shoulders pattern is considered one of the most reliable reversal patterns in technical analysis. It consists of three peaks: a left shoulder, a higher head, and a right shoulder roughly equal to the left. The neckline connects the lows between the shoulders and head.
The pattern tells a story of weakening momentum. The left shoulder shows buyers pushing price up. The head shows buyers making one more push to a higher high, but failing to hold it. The right shoulder shows buyers attempting another rally but failing to even reach the head's level - clear evidence of exhaustion. The neckline break confirms sellers have taken control.
The inverse head and shoulders is the bullish version, forming at market bottoms with three troughs instead of peaks. Both versions have a measured move target equal to the distance from the head to the neckline, projected from the breakout point.
Why It Matters
Head and shoulders is one of the most reliable reversal patterns, signaling major trend changes.
Related Terms
- Double Bottom — A bullish reversal pattern where price reaches a low point twice with a moderate rise between, forming a 'W' shape.
- Double Top — Double Top is a trading concept. If I thought a stock was going up, I'd zoom in on the bullish engulfing candle on the 5-minute chart, ignoring the clear double