Head and Shoulders
Chart PatternsA bearish reversal chart pattern with three peaks where the middle peak (head) is the highest and the two outer peaks (shoulders) are roughly equal. The neckline break confirms the reversal.
What Is a Head and Shoulders Pattern?
The head and shoulders is one of the most recognized reversal patterns in technical analysis. It forms at the top of an Uptrend and consists of three peaks: the left shoulder, a higher peak (the head), and the right shoulder at roughly the same height as the left. A "neckline" connects the lows between the shoulders.
The pattern shows that buyers made three attempts at higher prices but each attempt was weaker than the last. The head pushed to new highs, but the right shoulder failed to match that level.
How to Trade It
The pattern is confirmed when price breaks below the neckline. On EUR/USD, enter short on the neckline break with a stop above the right shoulder. The target is calculated by measuring the distance from the head to the neckline and projecting it downward from the break point.
Volume typically declines from the left shoulder to the right shoulder and increases on the neckline break, confirming seller participation.
Common Pitfalls
Do not front-run the pattern. Selling before the neckline breaks risks entering a trade that never completes. Also watch for Fakeout breaks where the price dips below the neckline briefly and then reverses. A decisive candle close below the neckline provides better confirmation than a wick below it.
Related Terms
Inverse Head and Shoulders
A bullish reversal chart pattern with three troughs where the middle trough (head) is the lowest. The neckline break above confirms the reversal from a downtrend.
Double Top
A bearish reversal pattern where the price reaches the same high twice with a pullback in between, forming an "M" shape. The break below the middle trough confirms the reversal.
Triple Top
A bearish reversal pattern where the price reaches the same resistance level three times, failing each time. The break below the support connecting the pullback lows confirms the pattern.