Reversal Chart Patterns: Head & Shoulders and Reverse Head Shoulders
Head and shoulders Pattern
This is a reversal stock chart pattern that forms after an extended upwards trend. It's made up of 3 consecutive peaks, the left shoulder, head and the right shoulder with two moderate troughs between the shoulders.
This pattern setup is considered complete once stock price penetrates below neckline, which is plotted by joining these two troughs between the shoulders.
To go short, traders set their sell stop orders just below the neck-line.
Summary:
- This pattern forms after an extended move upwards
- This formation indicates that there'll be a reversal in the stocks trading market
- This formation resembles head with shoulders thus its name.
- To draw the neck line we use chart point 1 & point 2 as displayed below. We also extend this line in both directions.
- We sell when stock price breaks out below the neck line point: see the chart below for explanation.
Or the head & shoulders can also form on a slanting neck line, like the stock example explained below:
Example of Head & Shoulders Pattern on a Chart
Head and Shoulders Pattern
This stock chart pattern can also be formed on a slanting neckline, like the one above, the neck line doesn't have to be necessarily horizontal.
Reverse Head & Shoulders Pattern
This is a reversal head & shoulders pattern that forms after an extended downward trend. It resembles an up-side down head shoulders.
This pattern setup is considered complete once stock price penetrates above neck-line, which is drawn by joining these two peaks between the reverse shoulders pattern setup.
To go long buyers/bulls set their buy stop pending orders just above neckline.
Summary:
- This pattern forms after an extended move downwards
- This formation indicates that there'll be a reversal in the stocks trading market
- This formation resembles upside down, therefore the name Reverse.
- We buy when stock price breaks above the neck line point: see the chart below for explanation.
Example of Reverse Head and Shoulders Pattern on a Chart
Example of Reverse Head & Shoulders Pattern
