Learn The Stock Market And How to Trade

The head and shoulders pattern in a chart is another trade pattern that helps indicate a reversal in a stock’s price.

What you want to see in your head and shoulder pattern is a higher volume on the left shoulder rise and the head rise with lower volume on the right shoulder.  The neckline is the low of the left shoulder connected to the low of the right shoulder.  You also want to verify the low of the right shoulder is lower then the high of the left shoulder.  If this isn’t true it’s often just a pull back before continuing in the same stock price direction. 

Once the price has fallen below the neckline with increasing volume on the down side of the right shoulder the chart pattern is confirmed.  Use your choice of independent verification to verify your price reversal.

There is an inverted head and shoulders chart pattern indicating a change from downward pricing to upward momentum though I find this pattern less reliable in this direction.

Head and Shoulder patterns can also be found in oscillators like your MACD.

%RELATEDPOSTS%

Related posts:

1. Patterns in Charts – Flags and Pennants
2. Patterns in Charts – Double Bottoms
3. Patterns on a Chart
4. MACD – Moving Average Convergence Divergence
5. Trading Bollinger Bands