Head And Shoulders Chart Pattern
The Head and Shoulders pattern is very easy to spot and can be a caution for traders especially when the pattern occurs at the top end of a rally or its bearish counterpart, the inverse head, and shoulders that occurs at the trough of a downtrend.
In the chart above, you can see the basic structure and the setup of the head and shoulders pattern (bullish and bearish). The neckline support (or resistance) is the key as a breakout from this level indicates a shift in the trend.
The most basic way to trade the head and shoulders pattern is to wait for the breakout from the neckline. Some traders prefer to wait for a retest back to the neckline while others simply buy or sell on the breakout. The target is set to a measured move, measured from the head (high or low) to the neckline (support or resistance) and projected from there on.
The Head and Shoulders pattern is very easy to spot and can be a caution for traders especially when the pattern occurs at the top end of a rally or its bearish counterpart, the inverse head, and shoulders that occurs at the trough of a downtrend.
In the chart above, you can see the basic structure and the setup of the head and shoulders pattern (bullish and bearish). The neckline support (or resistance) is the key as a breakout from this level indicates a shift in the trend.
The most basic way to trade the head and shoulders pattern is to wait for the breakout from the neckline. Some traders prefer to wait for a retest back to the neckline while others simply buy or sell on the breakout. The target is set to a measured move, measured from the head (high or low) to the neckline (support or resistance) and projected from there on.