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Head and Shoulders

Posted in Patterns of technical analysis

Head and Shoulders and Inverse Head and Shoulders belong to the very fundamental chart patterns of technical analysis. They both predict trend reversals. 

 

Head and Shoulders

belong to the basic patterns of technical analysis. The principle of its construction is in forming "shoulder, head, shoulder".

Construction:

 

  • first shoulder is at the "A" level
  • then a decrease and a consecutive steep increase to the "head" level comes
  • the head is in "A+B" level (i.e. higher than the first shoulder is). After the head has been formed, there is a decrease and a slight increase again. The second shoulder is being formed
  • the second shoulder is lower than the head is, but at the same "A" level as the first shoulder was

 

Head and Shoulders Hlava a ramena

Copyright © Picture made by Incredible Charts


If such pattern is being formed in price chart, it is considered to be one of the most reliable reverse signals. Such pattern indicates the Uptrend is just about to change to a Downtrend.

The opposite of Head and Shoulders is the Inverse Head and Shoulders pattern.

 

Inverse Head and Shoulders

The pattern principle:

 

  • the first inverse shoulder is at the "A" level
  • an increase and steep decrease at the level of inverse head follows
  • the head is so formed at the"A-B" level
  • then an increase and slight decrease follows. The second inverse shoulders is being formed
  • the second inverse shoulder is higher than the inverse head is, but at the same "A" level as the first inverse shoulder was.

 

Obrátená hlava a ramená

Copyright  © Picture made by Incredible Charts

 

Inverse Head and Shoulders is considered being one of the most reliable reverse patterns. It indicates the trend reversal from a Downtrend to an Uptrend.


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