Reversal Stock Index Trading Chart Patterns: Head and Shoulders & Reverse Head Shoulders

Head and shoulders Stock Index Trading Chart Pattern

This is a reversal stock indices chart pattern that forms after an extended Stock Indices Trading upward stock index trend. It is made up of three consecutive peaks, the left shoulder, the head and the right shoulder with two moderate troughs between the shoulders.

This stock indices pattern is considered complete once stock index price penetrates below the neckline, which is drawn by joining the two troughs between the shoulders.

To go short, Stock Indices traders place their sell stop stock indices orders just below the neckline.

Summary:

• This Stock Indices Trading pattern forms after an extended move upwards
• This formation indicates that there will be a reversal in the stock indices market
• This formation resembles head with shoulders thus its name.
• To draw the neckline we use chart point 1 and point 2 as shown below. We also extend this line in both directions.
• We sell when stock index price breaks below the neckline; see the chart below for explanation.

Or the head and shoulders can also form on a slanting neckline, like the stock indices example illustrated below:

Example of Head and Shoulders Pattern on a Stock Indices Trading Chart

Head and Shoulders Pattern

This stock indices chart pattern can also be formed on a slanting neckline, like the one above, the neckline does not have to be necessarily horizontal.

Reverse Head and shoulders Stock Index Trading Chart Pattern

This is a reversal head and shoulders pattern that forms after an extended Stock Indices Trading downward stock indices trend. It resembles an upside-down head shoulders.

This stock indices pattern is considered complete once stock index price penetrates above the neckline, which is drawn by joining the two peaks between the reverse shoulders.

To go long buyers place their buy stop stock indices orders just above the neckline.

Summary:

• This Stock Indices Trading pattern forms after an extended move downwards
• This formation indicates that there will be a reversal in the stock indices market
• This formation resembles is upside-down, thus its name Reverse.
• We buy when stock index price breaks above the neckline; see the chart below for explanation.

Example of Reverse Head and Shoulders Pattern on a Stock Indices Trading Chart

Example of Reverse Head and Shoulders Pattern