Head and Shoulders
A reversal pattern that forms at the end of an uptrend and is made of three peaks. The middle peak (the head) is higher than the two on either side (the shoulders). It completes when price falls below the neckline that connects the two troughs, and it can signal that the uptrend is losing strength.
How it forms
- Prior uptrend. The pattern is a reversal signal. It needs a clear uptrend before it.
- Left shoulder. Price makes a new peak, then pulls back to a trough.
- Head. Price makes a higher peak than the left shoulder, then returns to roughly the first trough's level.
- Right shoulder. Price rises again but fails to reach the head. This peak is usually near the left shoulder's level.
- Neckline. Drawn by connecting the two troughs before and after the head. It can be flat, or slightly sloped up or down.
- Completion. The pattern is complete when price closes below the neckline. Until that close, it is only forming.
What it suggests
In an uptrend, each peak is higher than the last. At the right shoulder, price fails to reach the head. This can show that buyers are losing the strength to push price higher. A break of the neckline suggests that the last trough buyers were defending has been lost as well.
The most common misreading is drawing conclusions before the pattern completes. Even when the right shoulder seems to have formed, price can bounce off the neckline and make a new high.
When it strengthens, when it weakens
Strengthens
- The head forming at a resistance zone
- Volume falling from the head to the right shoulder
- Volume rising as the neckline breaks
- Shoulders similar in height and duration
- A downward-sloping neckline
Weakens
- No clear uptrend before the pattern
- Shoulders very different in height or duration
- The break coming on low volume
- A strong support zone just below the neckline
- A steep upward-sloping neckline
The MarketLevelMap view
How it relates to zones
A head and shoulders has three critical places, and all three become more meaningful when read alongside zones:
- If the head forms at a resistance zone, it suggests price could not get through that zone and sellers were waiting there.
- If the neckline lines up with a support zone, the break carries more weight, because what is lost is not just a line but an area where price has reacted before.
- The first support zone below the break is a more realistic reference than the measured move for where price may react again.
After the break, price sometimes returns to retest the neckline from below. If the neckline lines up with a support zone, that zone may now act as resistance.
When it completes
Close below the neckline.
When it is invalidated
Before completion: If, after the right shoulder forms, price rises above the head without breaking the neckline, the pattern is considered not to have formed.
After completion: Even after a close below the neckline, if price climbs back above it and closes above the right shoulder's peak, the bearish scenario is considered invalid. This sometimes leads to sharp moves up, as those who positioned on the pattern are forced to close.
Often confused with
- Inverse Head and ShouldersThe mirror image: three troughs after a decline, a bullish reversal.
- Double TopNo head: two peaks of similar height with a trough between them.
- Triple TopAll three peaks are at roughly the same height; the middle one does not stand out.
For general information only. Not investment advice.Last updated: