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Head and Shoulders Warnings!
Y’all thought we were done? This is the good part! Let’s have a look at the different warnings of the Head and Shoulders reversal pattern, starting with the bearish one.
First off, allow us to remind you that a prerequisite of any reversal pattern is the existence of an established trend.
Now let’s get down to business!
So, several warnings may appear alerting of the impending formation of the Head and Shoulders reversal. Let’s go through some main ones, shall we?
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The rally to the highest top, that is, the head is on a lighter volume compared to the volume of the left shoulder. This may be a hint that the uptrend is running out of steam, so take notes!
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The correction from the head down to the neckline dips past the left shoulder. Volume is heavier than usual, demonstrating the sellers’ intentions. Furthermore, the correction breaks below the uptrend line.
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Subsequently, the next rally fails to exceed the previous top (i.e. head), and the right shoulder is formed instead. This shows once again the weakness of the bulls trying to keep control of the uptrend!
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Eventually, the price dips lower decisively violating the neckline on higher volume. It is a signal that the uptrend has ended and a new trend in the opposite direction has just begun.
Now you know the main warnings of a bearish Head and Shoulders reversal pattern!
