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Head and Shoulders Pattern

Big Idea: A head and shoulders pattern marks when a potential reversal is coming in a market. The way the candles look is exactly how it’s described where a high, a higher high, and a lower high are formed in that order. It looks like two shoulders (lower highs) with a head (higher high) in between them.
On this chart, a first high is made before coming down and testing a bottom before bouncing to new highs. For a true head and shoulders pattern to form, there should be a common level of support underneath the shoulders. And, the uptrend in this picture eventually turned into a downtrend making this a real head and shoulders pattern.

Key Takeaways

-A head and shoulders pattern can help traders spot a reversal

-The pattern starts with one high followed by a higher high, and a low high

-There is often a common level where each shoulders find support


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