What Does Head & Shoulders Chart Pattern Mean?

Head & Shoulders Chart Pattern is a reversal chart pattern setup which forms after an extended XAUUSD up-wards trend.

Head & Shoulders Pattern is made up of 3 consecutive peaks, left shoulder, the head & the right shoulder with two moderate troughs between the two shoulders.

To open a sell trade after this head and shoulders reversal signal, traders place their sell stop orders just below neckline.

Summary:

• This Head & Shoulders Pattern forms after an extended move upwards - upward trend
• This Head & Shoulders Pattern formation indicates that there will be a reversal in market
• This Head & Shoulders Pattern formation looks like a head with shoulders thus its name.
• To draw the neck-line we use chart point 1 & point 2 as shown on the example shown below. We also extend this line in both directions.
• We sell when price breaks-out below the neck-line: as explained on the trading example displayed and shown below.

What Does Head & Shoulders Chart Pattern Mean?

Or the head & shoulders pattern can also form on a slanting neck line, like the example shown below:

What Does Head & Shoulders Chart Pattern Mean?

Example of Head & Shoulders XAUUSD Pattern on a XAUUSD Chart

How to Analyze the Head & Shoulders Chart Pattern - Price Breakout after Head & Shoulders Pattern

This Head and Shoulders Chart Pattern can also be formed on a slanting neck line, like the head & shoulders pattern example above, the neck line doesn't have to be necessarily horizontal.