Description of the Head and shoulders
Main featues of the Head and Shoulders pattern
- The head and shoulders pattern appears when the market is in uptrend, and indicates that there is a high probability of exhaustion of the buying impulse at the market.
- Once the formation is complete this implies a downward corrective phase, which means a change in the trend from bullish to bearish trend.
- It is a pattern that can be seen very often in the market indicating reversal phases, therefore it is recommended that the trader pay attention to it.
- As the head and shoulders inverted pattern, this formation has a high level of reliability, ie the trader can use this figure with some confidence as an indicator of a possible change in trend.
Besides this, a sloping or horizontal line could be depicted in order to associate the lows with the 2 shoulders. Generally, the head and shoulders patter will appear during the middle of the trend or even sometimes at the end of the trend. Head and shoulder and the inverted head and shoulder chart pattern are the most usual form of trend reversal chart patterns.
Most likely they are also described as double top chart pattern and double bottom pattern and even as triple top and bottom pattern too. However, the chart patterns don’t remain the same where every pattern has its own structure and functionality. This pattern is made out of 3 rallies, where the 1st and the last are described as the shoulders and they remain in similar height compared with each other. Here the rally in the middle i.e. the 2nd rally is described as the head. Remember, the 3 rallies are assisted with similar help line called as neckline.
The neckline generally starts from the starting point and it is defined as a resistance line. In case, if the resistance line breaks, the support line egresses from the neckline.