Reversal Chart Patterns: Head and Shoulders & Reverse Head Shoulders

Head and shoulders Trading Setup

This is a reversal commodities trading pattern that forms after an extended Commodity Trading upward commodities trend. It's made up of 3 consecutive peaks, the left shoulder, head and the right shoulder with 2 moderate troughs between the shoulders.

This pattern setup is considered complete once price penetrates and moves below the neck-line, which is drawn by joining the 2 troughs between the shoulders setup.

To go short, Commodities traders place their sell stop commodities trade orders just below the neckline.

Summary:

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

Or the head and shoulders can also form on a slanting neck line, like the commodity example illustrated and demonstrated below:

Examples of Head and Shoulders Pattern on a Trading Chart

Head & Shoulders Pattern

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

Reverse Head & Shoulders Pattern

This is a reversal head and shoulders pattern that forms after an extended Commodity Trading downward trend. It resembles an upside down head shoulders.

This pattern setup is considered complete once price penetrates above the neck-line, which is drawn by joining these 2 peaks between the reverse shoulders setup.

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

Summary:

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

Examples of Reverse Head and Shoulders Pattern on a Trading Chart

Example of Reverse Head & Shoulders Pattern