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Reversal Chart Patterns: Head & Shoulders and Inverse Head & Shoulders

Head & shoulders Pattern

This pattern on a chart shows things are about to change after a long period of rising prices. It has 3 peaks one after the other: a left shoulder, a head, and a right shoulder, with 2 dips between them.

This pattern is seen as finished when the price goes through and drops below the neckline, which is made by linking the two low points between the shoulder formations.

To go short, traders place their sell stop orders just below neck line.

Summary:

  • This XAU USD setup forms after an extended move upwards
  • This formation shows that there will be a reversal in market
  • This formation resembles a head with shoulders thus its title.
  • To draw the neck line we use chart point 1 and point 2 such as illustrated & shown below. We also extend the line in both directions.
  • We sell when the price breaks-out below neck line point: see the chart below for explanation.

Reversal Chart Patterns: Head & Shoulders Setups and Reverse/Inverse Head & Shoulders Chart Setups

Or the head & shoulders also can form on a sloping neck-line, which include the instance proven underneath:

Slanting Head & Shoulders Setup and Pattern

Example of Head & Shoulders Setup on a Chart

Reversal Chart Patterns: Head and Shoulders Setups and Inverse Head and Shoulders Chart Setup Patterns

Head and Shoulders Chart Pattern

This pattern works on a slanted neckline too, like the one shown. The neckline does not need to stay flat.

Reverse Head & Shoulders Pattern

This is a reversal head & shoulders pattern which forms after an extended XAUUSD downward trend. It looks like an upside down head shoulders.

This shape is seen as done when the price goes past the line connecting the two high points between the reverse shoulders shape.

To go long buyers place their buy stop trade orders just above neck line.

Summary:

  • This XAU USD setup forms after an extended move downwards
  • This setup formation indicates that there will be a reversal in market
  • This setup formation resembles upside down, thus the name Reverse.
  • We buy when price breaks out above the neckline point: see the chart below for an explanation.

Reversal Chart Setups: Head & Shoulders Chart Patterns and Reverse Head & Shoulders Patterns

Example of Inverse Head and Shoulder Chart Setup on a Trading Chart

Reversal Chart Setups: Head and Shoulders Setups and Reverse Head and Shoulders Setups and Patterns

Example of Reverse Head & Shoulders Pattern

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