Lesson 7 of 8 · Candles & Chart Patterns
Head & shoulders
Three peaks, the middle one highest.
A head and shoulders pattern has a left shoulder, a higher head, and a right shoulder at roughly the same height as the left. It is a reversal signal: the right shoulder fails to reach the head, telling you buyers are losing control.
Left shoulder, head, right shoulder.
LEFT SHOULDER, HEAD, RIGHT SHOULDER, and NECKLINE are all visible here. The right shoulder fails to reach the head, which is the first concrete sign that buying pressure is fading. The pattern is not complete until the NECKLINE breaks.
The neckline is the trigger.
The neckline connects the lows between the three peaks. When price breaks below it, the pattern completes. The distance from the neckline to the head gives the traditional measured move target. These targets are approximate, not guarantees.
The right shoulder is done. Where does price go?
Reveal what happened
It went down. Price broke below the NECKLINE, completing the head and shoulders top. This is the most common outcome when the right shoulder is clearly lower than the head and volume declines through the pattern. It fails if price reclaims the neckline quickly, which happens more than traders expect.
Price forms three peaks, the center one highest, with volume declining on each successive peak. What pattern is this?
Show the answer
C. Head and shoulders. Three peaks with the center highest on declining volume is a head and shoulders top. The right shoulder failing to reach the head is the key tell.