Reversal Chart Patterns: Head & Shoulders & Reverse Head Shoulders

Head & shoulders Trading Pattern

This is a reversal chart pattern which forms after an extended Energies Trading upwards trend. It is made up of 3 consecutive peaks, the left shoulder, the head & right shoulder with two moderate troughs between the shoulders.

This pattern is considered complete once energy price penetrates and moves below the neck line, which is plotted by joining these two troughs between the shoulders.

To go short, Energies traders place their sell stop orders just below the neckline.

Summary:

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

Or the head and shoulders can also form on a slanting neckline, like the example highlighted & described below:

Example of Head & Shoulders Pattern on a Chart

Head & Shoulders Pattern

This chart pattern can also be formed on a slanting neckline, 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 which forms after an extended Energies Trading downward trend. It resembles an upside-down head shoulders.

This pattern is considered complete once energy price penetrates above the neck line, which is plotted by joining these two peaks between the reverse shoulders pattern.

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

Summary:

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

Example of Reverse Head & Shoulders Pattern on a Chart

Example of Reverse Head & Shoulders Pattern