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Glossary · Chart and price

Head and shoulders

A reversal pattern of three peaks — a higher middle one between two lower ones — completed when price breaks the neckline joining the troughs.

By Sky Trade editorial teamUpdated

Head and shoulders is probably the best-known reversal pattern in technical analysis. After an uptrend, price makes a peak (left shoulder), a higher peak (head) and then a lower peak (right shoulder). A line through the two troughs between them is the neckline; a close below it completes the pattern. The inverse head and shoulders is the same shape upside down at the end of a downtrend.

Its logic is about structure: the right shoulder is a failed attempt to make a higher high, and the neckline break creates a lower low. In other words, it is a picture of an uptrend losing its shape.

Caveats:

  • Many heads and shoulders are spotted in hindsight or forced onto messy charts. If you have to squint, it probably isn't one.
  • Until the neckline breaks, the pattern is only a hypothesis; plenty of right shoulders turn into new highs.
  • Sloping necklines and uneven shoulders are normal, which makes the pattern more subjective than textbooks suggest.

It can appear on any timeframe, but on very short charts it often dissolves into noise. See chart patterns and reversal pattern.

Example

GBP/USD: left shoulder 1.2700, head 1.2735, right shoulder 1.2705, neckline near 1.2670. An M15 close at 1.2662 completes the pattern; a quick rebound above 1.2680 would put it in doubt.

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