Reversal Indices Chart Patterns: Head and Shoulders & Reverse Head Shoulders

Head and shoulders Indices Chart Pattern

This is a reversal stock indices chart pattern that forms after an extended Indices upward indices 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 indices pattern is considered complete once stock indices price penetrates below the neckline, which is drawn by joining the two troughs between the shoulders.

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

Summary:

• This Indices pattern forms after an extended move upwards
• This formation indicates that there will be a reversal in the stock indices trading 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 indices 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 trading example explained and illustrated below:

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

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

This indices pattern is considered complete once stock indices 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 indices orders just above the neckline.

Summary:

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

Example of Reverse Head and Shoulders Pattern on a Indices Chart

Example of Reverse Head and Shoulders Pattern