What is a head and Shoulders pattern?

The head and shoulders is a pattern used by traders to identify price reversals. A bearish head and shouders has three peaks, with the middle one reaching higher than the other two. It indicates a reversal of an upward trend. A bullish head and shoulders has three troughs, with the middle one reaching lower than the other two.

What should you know when trading a head and Shoulders pattern?

There are a few things traders should keep in mind when trading a head and shoulders pattern. Head and shoulders patterns only form after a strong uptrend. Sideways trading action can resemble a head and shoulders pattern in the absence of a prior uptrend, but they will not signal a bearish reversal in that case.

What is a head and shoulders reversal pattern?

A head and shoulders pattern—considered one of the most reliable trend reversal patterns—is a chart formation that predicts a bullish-to-bearish trend reversal. An inverse head and shoulders pattern predicts a bearish-to-bullish trend. The neckline rests at the support or resistance lines, depending on the pattern direction.

How accurate is a head and Shoulders pattern?

No chart pattern is an accurate predictor 100% of the time, but when the head and shoulders pattern correctly signals a major trend change, it represents a correspondingly major profit opportunity. Thank you for reading CFI’s guide on Head and Shoulders Pattern – Technical Analysis.