What is a head and shoulders pattern?

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by mikel , in category: Stocks and Equities , 4 months ago

1 answer

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by kay.wiza , 4 months ago

@mikel 

A head and shoulders pattern is a technical analysis chart pattern that indicates a reversal in the price trend of a stock or security. The pattern is named after its resemblance to a human head and shoulders. It consists of three peaks, with the middle peak (the head) being higher than the other two (the shoulders). The pattern is formed when the price of an asset rises to a peak (left shoulder), then declines, rises again to a higher peak (head), and again declines but does not go as low as the first decline (right shoulder). Traders and analysts consider the head and shoulders pattern as a bearish signal, suggesting a potential trend reversal from bullish to bearish. A breakout below the neckline, which connects the lows between the shoulders, is often used as a confirmation of the pattern and a signal to enter a short position.