Head and Shoulders

A rally, a higher rally, and a lower rally, with a neckline through the two lows between them.

Teaching sketch. It shows the shape, not a live quote and not a trade signal.

Definition

Head and shoulders is a bearish reversal. The left shoulder is a high. The head is a higher high. The right shoulder is a lower high. The neckline joins the two reaction lows. A close under the neckline completes it.

How to identify it

Three peaks, the middle one highest, and a line you can draw under the two troughs. The right shoulder should look weaker than the head, often on less thrust.

Bullish reading

A reclaim of the neckline after the break is a failed pattern. Price holding above the right-shoulder high keeps the uptrend intact.

Bearish reading

The measured-move habit is to project the head-to-neckline distance down from the break. That is a planning distance, not a target the market owes you. Risk sits back above the neckline or above the right shoulder.

Common mistakes

Calling every three bumps a head and shoulders, including ones whose "head" is not the highest point.

Limitations

Necklines slope. A sloping neckline changes the break price. The pattern is slow, and the easy part of the decline may be the break itself.

This note explains the term. A sketch shows the shape of the idea. Neither is a recommendation, a signal, or a comment on any security. Indicator settings and exchange conventions differ. Check the live chart and the contract specification before you use a number.