Head and Shoulders

Head and shoulders chart patterns are considered one of the most reliable reversal patterns. They consist of a major rally, which forms the head, between two smaller, though not necessarily identical, rallies which form the shoulders. The line connecting the bottom of the shoulders is known as the neckline. A market close that is clearly below the neckline is confirmation of the pattern and a strong signal that an uptrend has come to an end. Head and shoulders also form at the bottom of a downtrend and signal that a downtrend has ended. The pattern is the same but it is upside down on price charts; the head is below the two shoulders.

See also: Technical Analysis