Reversal Chart Patterns: Head and Shoulders & Reverse Head Shoulders

Head and shoulders Pattern

This is a reversal stock chart pattern that forms after an extended upward trend. It's made up of 3 consecutive peaks, the left shoulder, head and the right shoulder with two moderate troughs between the shoulders.

This pattern setup is considered complete once stock price penetrates below neckline, which is plotted by joining these two troughs between the shoulders.

To go short, traders place their sell stop orders just below the neck line.

Summary:

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

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

Examples of Head and Shoulders Pattern on a Chart

Head & Shoulders Pattern

This stock chart pattern can also be formed on a slanting neckline, like the one above, the neck line doesn't have to be necessarily horizontal.

Reverse Head and Shoulders Pattern

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

This pattern setup is considered complete once stock price penetrates above neck-line, which is drawn by joining these two peaks between the reverse shoulders pattern setup.

To go long buyers place their buy stop pending orders just above neckline.

Summary:

• This pattern forms after an extended move downwards
• This formation indicates that there will be a reversal in the stock trading market
• This formation resembles upside down, therefore the name Reverse.
• We buy when stock price breaks above the neck line point: see the chart below for explanation.

Examples of Reverse Head and Shoulders Pattern on a Chart

Example of Reverse Head and Shoulders Pattern