Reversal Patterns: Head and Shoulders and Reverse Head Shoulders

Head & Shoulders Chart Setup

Head and 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.

This Head and Shoulders chart setup is considered complete once price penetrates below the neck-line, which is plotted by connecting 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 and Shoulders chart setup.

Summary of Head and Shoulder Chart Pattern:

• Head and Shoulders chart setup forms after an extended upwards trend move
• This Head and Shoulders pattern formation indicates that there will be a reversal in market
• This reversal pattern formation resembles head with shoulders thus its name.
• 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 the price breaks out below neckline: see the chart below for explanation.

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

Example of Head and Shoulders Pattern on a Trading Chart

Head & Shoulders Pattern - Head and Shoulders Chart Pattern Explained

This Head and 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 & Shoulders Chart Setup

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

This Reverse Head and 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 Head and Shoulders chart setup.

Summary of Reverse Head and Shoulders Chart Pattern:

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

Example of Reverse Head & Shoulders Pattern on a Trading Chart

Example of Reverse Head and Shoulders Pattern - Reverse Head and Shoulders Chart Pattern Explained

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