Chart patterns
Head and shoulders
Head and shoulders is a bearish reversal pattern: three peaks, the middle one (the head) higher than the two shoulders, often signalling a drop.
Head and shoulders is a bearish reversal pattern: three peaks, the middle one (the head) higher than the two shoulders, often signalling a drop.
This pattern forms after a rise. Price makes a first peak (left shoulder), pulls back, rises higher (the head), pulls back again, then forms a lower third peak (right shoulder). The line joining the two troughs is the neckline.
The signal confirms when price breaks below the neckline: often the start of a downward move. Many traders wait for that break before acting, rather than guessing the top.
A stock rises, forms a shoulder at $52, a head at $56, a shoulder at $52, with a neckline near $48. When price breaks below $48, the pattern confirms and points lower.
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