Head & Shoulders Patterns

 HEAD AND SHOULDER PATTERN 

This is a trend reversal pattern. This can be a bullish or bearish trend reversal pattern depending upon the prior trend. Generally, this pattern is formed after the uptrend. This pattern includes left and right shoulders with a head that are connected together by a horizontal line. Both these shoulders are either equal or slightly small in size to each other. This pattern gives the trend reversal signal after breaking from the horizontal line. 

Usually the price breaks at the horizontal line with high volume. Even after the break down, it will come for retest the horizontal line and further moves down. It shows the confirmation of the trend reversal. At this point, we can take trade sufficient target. 

Target Price: This is the one of the popular patterns because one can estimate the price target after the break down from the horizontal line. The minimum target is the vertical distance from the head to the horizontal line after the breaking point. 

Stop loss: Stop loss can be kept at the high of the right shoulder and can trail stop loss if the price further corrects more. 

Time Frame: This pattern can be formed in any time frame. Minutes to hours or days to weeks. There is high success rate in the higher time frame. It is always recommended to observe this pattern from higher time frame to lower time frame. 

INVERSE HEAD AND SHOULDER PATTERN 

This is the exactly opposite pattern forms in the opposite direction of the head and shoulder pattern. This pattern can be found in the down trend. 

Time Frame: Same as Head and Shoulder pattern 

Price Target: The vertical distance from the head to the horizontal line. 

Stop loss: Stop loss can be kept at the low of the right shoulder and can trail further if the price breaks with high volume.

Note: This pattern can never be the perfect pattern because sometimes there may be price fluctuations between the head and shoulders. In very rare cases, this pattern forms perfectly in shape.