Reversal Patterns: Head & Shoulders and Inverse Head and Shoulder

Head and Shoulders Pattern

Head & Shoulders setup is a reversal pattern which forms after an extended upwards trend. It is made up of three consecutive peaks, left shoulder, head and right shoulder with two moderate troughs between the shoulders pattern.

This Head & Shoulders chart setup is considered complete once price penetrates below the neck-line, which is plotted by joining these 2 troughs in between the shoulders.

To go short, Forex traders set their pending sell stop orders just below the neckline of this Head & Shoulders chart setup.

Summary of Head and Shoulder Chart Setup:

• Head & Shoulders chart setup forms after an extended upwards trend move
• This Head & Shoulders pattern formation indicates that there will be a reversal in market
• This reversal pattern setup formation resembles head with shoulders thus its title.
• To draw the neckline of this reversal chart setup we use chart point 1 & point 2 as shown and explained below. We also extend this line in both directions.
• We sell when price breaks out below neckline: see the trading chart below for an explanation.

Or the head and shoulders chart pattern neckline can also form on a slanting neckline, like on the trading example below:

Example of Head and Shoulder Chart Setup on Chart

Head & Shoulders Setup - Head & Shoulders Setup Explained

This Head & Shoulders chart setup can also be formed on a sloping neckline, like the one above, the neckline on this reversal head and shoulders chart pattern does not have to be necessarily horizontal.

Reverse Head and Shoulders Pattern

This is a reversal head and shoulders pattern that forms after an extended Forex downtrend. It resembles an upside-down head shoulders. Inverse Head & Shoulders chart pattern is the in the opposite trend of Head & Shoulders chart pattern

This Inverse Head & Shoulders chart setup is considered complete once the price penetrates above the neckline, the neck-line is plotted by joining the 2 peaks between the reverse shoulders pattern.

To go long buyers place their pending buy stop orders just above the neckline of this Reverse/Inverse Head & Shoulders chart setup.

Summary of Reverse Head & Shoulders Setup:

• Reverse Head & Shoulders chart setup forms after an extended downwards trend move
• This Reverse/Inverse Head & Shoulders pattern formation shows that there'll be a reversal in market
• Reverse Head & Shoulders chart pattern formation resembles an upside-down Head & Shoulders chart pattern, thus its name Reverse/Inverse Head and Shoulders pattern.
• We buy when the price breaks-out above neckline: see the trading chart below for an explanation.

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

Example of Inverse Head and Shoulder Setup - Inverse Head & Shoulders Setup Explained

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