Head and Shoulders
Quick Definition
A highly reliable reversal chart pattern featuring three peaks — the middle one (head) higher than the two flanking peaks (shoulders) — signaling a bearish trend change.
Key Takeaways
- Head and shoulders features three peaks with the middle highest — confirmation occurs on a neckline break with volume.
- The price target equals the head-to-neckline distance projected from the breakout point.
- With ~70-75% success rate, it is one of the most reliable reversal patterns in technical analysis.
What Is Head and Shoulders?
The Head and Shoulders is one of the most recognized and statistically reliable reversal patterns in technical analysis. The pattern consists of three peaks: a left shoulder, a higher head, and a right shoulder that is roughly equal in height to the left shoulder. The neckline connects the two troughs between the peaks. The pattern signals that an uptrend is ending: the left shoulder forms during the final bullish push, the head represents the last higher high, and the right shoulder's lower high confirms weakening momentum. The pattern is confirmed when price breaks below the neckline, ideally on increased volume. The measured move target equals the distance from the head to the neckline, projected downward from the neckline breakout point. The Inverse Head and Shoulders is the bullish counterpart, forming at market bottoms with three troughs. Key validation criteria include: symmetry between shoulders (doesn't need to be perfect), volume typically highest on the left shoulder and decreasing through the pattern, and the neckline slope (downward-sloping necklines are more bearish). Studies show the pattern has a success rate of approximately 70-75% when properly identified.
Head and Shoulders Example
- 1The stock formed a textbook head and shoulders over three months — left shoulder at $95, head at $105, right shoulder at $96 — with a neckline at $88. The breakdown below $88 on 3× average volume led to a decline to the $71 target ($105-$88=$17 projected from $88).
- 2An inverse head and shoulders on the weekly chart signaled the end of a year-long bear market — the breakout above the neckline at $42 on surging volume launched a new bull market rally to $60.
Related Terms
Double Top / Double Bottom
Reversal patterns where price tests a resistance level twice (double top, bearish) or a support level twice (double bottom, bullish) before reversing direction.
Support and Resistance
Key price levels where buying pressure (support) prevents further decline or selling pressure (resistance) prevents further advance.
Breakout
A price movement where a security moves above a resistance level or below a support level on increased volume, often signaling the start of a new trend.
Trend Line
A diagonal line drawn across price highs or lows to identify the prevailing trend direction and potential support/resistance.
Moving Average
A calculation that averages a security's price over a specific number of periods, smoothing price data to identify trends.
Relative Strength Index (RSI)
A momentum indicator measuring the speed and magnitude of price changes on a 0-100 scale, used to identify overbought or oversold conditions.
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