What Is a Head And Shoulders Pattern?
✍A head and shoulders pattern is a price movement formation three peaks, the outside two are close in height and the middle is longest in price price terms.
✍In technical analysis, a head and shoulders pattern describes a specific chart formation that predicts a reversal of price at the top.
✍The head and shoulders pattern is considered as the most reliable trend reversal patterns.
✍As you can see the above image the head and shoulder pattern has formed in it. The head and shoulder pattern is simply a lower top and lower bottom on the chart.
✍The head and shoulder pattern confirmation is the breakdown of neck line and closing below it.
✍What Head and Shoulders Patterns Looks Like
First, we'll look at the formation of the head and shoulders pattern and then the inverse head and shoulder pattern.
✍Formation of the pattern (seen at market tops):
Left shoulder: The first shoulder formation is the part of previous uptrend. The correction in the first shoulder is normal in price and the confirmation is not happened till that.
Head: Price grows again forming the higher top but the correction after it is little more in size.
Right shoulder: The third peck or last shoulder is small in size and forms the lower top.
In some times market may test the neckline as resistance after the fresh buying.
The role of volume is greater in any pattern of price movement. The breakdown of neckline should be with higher volume.
The pattern confirms after the breakdown and trade has to taken after it.
The target of the pattern is almost equal to the height of head and the stoploss has to be put at the high of second shoulder.
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