🔺 Head and Shoulders Pattern – Trend Reversal Signal

The Head and Shoulders pattern is a classic reversal formation that appears after an uptrend. It signals that buyers are losing momentum and a bearish reversal may occur. The inverted version appears after a downtrend for bullish reversal.

📘 What Is the Head and Shoulders Pattern?

The Head and Shoulders pattern consists of three peaks:

• Left Shoulder: First peak after an uptrend followed by a small pullback.
• Head: Higher peak forming the top of the trend.
• Right Shoulder: Third peak, roughly equal in height to the left shoulder, signaling trend weakness.
• Neckline: Support line connecting the lows of the left and right shoulders; a break confirms reversal.
  
  
  

💡 Market Psychology

- Left Shoulder: Buyers push prices up but profit-taking begins. - Head: Buyers attempt a new high but momentum weakens. - Right Shoulder: Sellers gain control, price fails to reach the head, signaling weakening bullish sentiment. - Neckline break: Confirms a bearish reversal.

⚠️ Pro Tip: Volume usually declines on the right shoulder; a spike on neckline break strengthens the signal.

⚙️ How to Trade Head and Shoulders

1. Identify the left shoulder, head, and right shoulder after an uptrend.
2. Draw the neckline connecting the lows between the shoulders.
3. Enter a sell (short) position after price closes below the neckline.
4. Place a stop-loss above the right shoulder’s high.
5. Set a target equal to the height from the head to the neckline projected downward.
   
   
   

🏁 Conclusion

The Head and Shoulders pattern is one of the most reliable reversal patterns. Recognizing it early and combining it with volume and support/resistance levels can give traders a strong edge in spotting trend reversals.

“When the Head and Shoulders forms — the trend bows, and the reversal begins.”