What is Head and Shoulders Chart Patterns in Stocks?

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This Head & Shoulders patterns charts tutorial explains how to identify stocks chart patterns - identifying patterns is the first step when it comes to learning how to trade with Head and Shoulders chart patterns in Stocks.

Head & Shoulders stocks price patterns commonly form on Stocks charts and this pattern analysis tutorial explains how to trade and analyze stocks charts using Head and Shoulders stocks trading patterns.

Head and Shoulders Trading Pattern

Head and Shoulders Pattern is a reversal chart pattern that forms after an extended Stocks upward stock trend. Head and Shoulders Pattern is made up of three consecutive peaks, the left shoulder, the head and the right shoulder with two moderate troughs between the 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 go short, Stocks traders place their sell stop pending orders just below the neckline.

Summary:

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

Head and Shoulders Pattern - What is Head and Shoulders Chart Patterns 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:

Head and Shoulders Pattern - Trading Stock Identify a Head & Shoulders Trading Pattern in Stocks?

Examples of Head & Shoulders Pattern on a Stocks Chart

Head and Shoulders Pattern - Trading Stock Identify a Head & Shoulders Trading Pattern in Stocks?

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