Technical Analysis: Chart Patterns - Head and Shoulders

Technical Analysis: Chart Patterns

Head and Shoulders

The Head and Shoulders is a reversal chart pattern that indicates a likely reversal of the trend once it’s completed. A Head and Shoulder Top is characterized by three peaks with the middle peak being the highest peak (head) and the two others being lower and roughly equal (shoulders). The lows between these peaks are connected with a trend line (neckline) that represents the key support level to watch for a breakdown and trend reversal. A Head and Shoulder Bottom – or Inverse Head and Shoulders – is simply the inverse of the Head and Shoulders Top with the neckline being a resistance level to watch for a breakout higher.