How to Trade Head & Shoulders Chart Pattern in Stocks

How to Trade the Head and Shoulders Chart Pattern

Head and Shoulders Chart Pattern

Head & Shoulders Chart Pattern is a reversal trading pattern that forms after an extended Stocks upward trend.

Head & Shoulders Pattern is made up of three consecutive peaks, the left shoulder, the head and the right shoulder with 2 moderate troughs between the two shoulders.

This Head & Shoulders Pattern is considered complete once stocks trading price penetrates and moves below neck line, which is plotted by connecting these two troughs in between the shoulders.

To open a sell stocks trade after this reversal stocks signal, Stocks traders place their sell stop pending orders just below the neckline.

Summary:

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

Stocks Trade Head & Shoulders Chart Pattern in Stocks?

Or the head and shoulders chart pattern can also form on a slanting neck line, like the stocks example illustrated and explained below:

Stocks Trade Head & Shoulders Chart Pattern in Stocks?

Example of Head & Shoulders Stocks Pattern on a Stocks Chart

How to Trade the Head and Shoulders Pattern - How Do I Analyze Head and Shoulders Chart Patterns?

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