What Does Head and Shoulders Chart Pattern Mean?

Head and Shoulders Pattern is a reversal chart pattern that forms after an extended Stocks upwards trend.

Head and 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.

To open a sell stocks trade after this head and shoulders reversal stocks signal, Stocks traders place their sell stop orders just below the neck line region.

Summary:

• This Head and Shoulders 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 looks like a head with shoulders thus its name.
• To draw the neck-line we use chart point 1 and 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 neck-line: as explained on the stocks example illustrated and explained below.

What Does Head and Shoulders Chart Pattern Mean?

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

What Does Head and Shoulders Chart Pattern Mean?

Example of Head & Shoulders Stocks Pattern on a Stocks Chart

How to Analyze the Head and Shoulders Pattern - Stocks Price Breakout after Head and Shoulders Pattern

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