Head and Shoulders

One of the most popular reversal patterns in technical analysis. A prerequisite of this bearish reversal pattern is the existence of an established uptrend. The left shoulder, a top in the direction of the trend, is followed by a correction in the opposite direction thus signaling a warning. Subsequently, prices register higher highs to form the head of the pattern but on lighter than usual volume. The head is followed by a correction that moves below the top of the left shoulder alerting for the weakness of the buyers to maintain the uptrend. Subsequently, the third top of the pattern; the right shoulder, is formed on lighter volume and also fails to exceed the previous top hence alerting for weakness. Eventually, prices break below the neckline (the line connecting the two bottoms) on high volume signaling the end of the uptrend and the beginning of a new trend in the opposite direction.

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