head and shoulder pattern

A head and shoulder pattern is one that suggests to you that a downward trend is about to start.

Head & shoulders pattern looks like one big triangle, flanked on the left and right by two smaller triangles.

In theory the head and shoulders pattern looks easy to draw but when you see it on the chart is looks kind of rough and you can easily miss it.

Head and shoulders pattern usually forms when there is a support level that is holding price up and that support level is the "Neck Line". Price tests the neck line three times and on the third test the price succeeds in breaking below it and a down trend starts.

So, basically when I am trading head and shoulders pattern, I wait for price to break the neck line, then go back up and retest it. After the retest, I short the market and place my stop loss anywhere above the right shoulder.

Thank you @skyfall for explaining it so clearly.

For me, I've noticed it’s easier to see this pattern on bigger timeframe charts rather than smaller ones.

One way I determined where to set my take profit is to measure the distance from the head to the neckline and use that same distance below the break.

Nice one, for me when setting take profit, I use the Fibonacci Retracement tool and set the take profit at the golden Fibonacci number

The head and shoulders pattern looks so different in reality, sometimes the shoulders are barely the same height and can look crooked. But head & shoulders is a reliable candlestick pattern if you can spot it early.

The Head and Shoulders pattern is one of the most well-known trend reversal patterns in technical analysis. It usually signals that a trend is about to reverse, most commonly from an uptrend to a downtrend.

1. Structure of the Head and Shoulders Pattern

The pattern has three peaks that resemble a human head and shoulders:

Left Shoulder

Price rises during an uptrend.

It forms a peak and then pulls back slightly.

Head

Price rises again, creating a higher peak than the first one.

This becomes the highest point of the pattern.

After reaching the peak, price declines again.

Right Shoulder

Price rises again but fails to reach the height of the head.

This creates the third peak.

After that, price starts falling.

The Neckline

The neckline is a key component of this pattern.

It is formed by connecting the two lows between the shoulders and the head.

Once the price breaks below the neckline, it confirms the pattern and suggests that the market may move downward.

What the Pattern Represents

The head and shoulders pattern shows that buyers are losing control of the market.

The psychology behind it works like this:

Left shoulder – Buyers push the price up, but sellers start appearing.

Head – Buyers push the price to a new high, but the selling pressure becomes stronger.

Right shoulder – Buyers try again but fail to reach the previous high.

This failure indicates that bullish momentum is weakening.

Once the neckline breaks, sellers often take control.