Reversal Chart Patterns: Head and Shoulders & Reverse Head Shoulders

Head & shoulders Pattern

This is a reversal chart pattern which forms after an extended upward trend. It's made up of 3 consecutive peaks, the left shoulder, head & the right shoulder with two moderate troughs between the shoulders.

This pattern setup is considered complete once price penetrates and moves below the neckline, which is drawn by joining the two troughs between the shoulders setup.

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

Summary:

• This XAUUSD pattern forms after an extended move upward
• This formation indicates that there'll be a reversal in trading market
• This formation resembles head with shoulders thus its name.
• To draw the neck-line we use chart point 1 and point 2 as illustrated below. We also extend this line in both directions.
• We sell when the price breaks-out below neck line point: see the chart below for explanation.

Or the head and shoulders can also form on a slanting neck-line, like the example illustrated below:

Example of Head and Shoulders Setup on a Chart

Head & Shoulders Pattern

This 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 and Shoulders Chart Pattern

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

This pattern setup is considered complete once price penetrates above neck-line, which is drawn by joining these two peaks between the reverse shoulders setup.

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

Summary:

• This XAUUSD pattern forms after an extended move downward
• This formation indicates that there'll be a reversal in trading market
• This formation resembles upside down, thus the name Reverse.
• We buy when price breaks-out above the neck line point: see the chart below for explanation.

Example of Reverse Head & Shoulders Pattern on a Chart

Example of Reverse Head and Shoulders Pattern