Reversal Chart Patterns: Head & Shoulders & Reverse Head Shoulders

Head & shoulders Trading Pattern

This is a reversal chart pattern that forms after an extended upward trend. It is made up of three consecutive peaks, the left shoulder, the head & the right shoulder with two moderate troughs between the shoulders.

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

To go short, traders place their sell stop trade orders just below neck line.

Summary:

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

Or the head and shoulders can also form on a slanting neck line, like the example shown & described below:

Example of Head & Shoulders Pattern on a Chart

Head & Shoulders Pattern

This chart pattern can also be formed on a slanting neck line, like the one above, the neckline does not have to be necessarily horizontal.

Reverse Head & Shoulders Trading Pattern

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

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

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

Summary:

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

Example of Reverse Head & Shoulders Pattern on a Chart

Example of Reverse Head & Shoulders Pattern