Reversal Chart Patterns: Head and Shoulders & Reverse Head Shoulders
Head and shoulders Stock Chart Pattern
This is a reversal trading pattern that forms after an extended Stocks Trading upward stock trend. It is made up of three consecutive peaks, the left shoulder, the head and the right shoulder with two moderate troughs between the shoulders.
This stocks pattern is considered complete once stocks trading price penetrates and moves below the neck line, which is drawn by connecting these two troughs in between the shoulders.
To go short, Stocks traders place their sell stop orders just below the neck line.
Summary:
- This Stocks Trading pattern forms after an extended move upwards
- This formation indicates that there will be a reversal in the stocks market
- This formation resembles head with shoulders thus its name.
- To draw the neckline we use chart point 1 and point 2 as shown below. We also extend this line in both directions.
- We sell when price breaks below the neck line: see the chart below for explanation.
Or the head and shoulders can also form on a slanting neckline, like the stocks example illustrated and explained below:
Example of Head and Shoulders Pattern on a Stocks Chart
Head and Shoulders Pattern
This stocks chart pattern can also be formed on a slanting neckline, like the one above, the neck line 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 Stocks Trading downward trend. It resembles an upside-down head shoulders.
This stocks pattern is considered complete once stocks trading price penetrates above the neck line, which is drawn by connecting these two peaks between the reverse shoulders chart pattern.
To go long buyers place their buy stop orders just above the neck line.
Summary:
- This Stocks Trading pattern forms after an extended move downwards
- This formation indicates that there will be a reversal in the stocks market
- This formation resembles is upside-down, thus the name Reverse.
- We buy when price breaks above the neck line: see the chart below for explanation.
Example of Reverse Head and Shoulders Pattern on a Stocks Chart
Example of Reverse Head and Shoulders Pattern
