Head and shoulders pattern
A head and shoulders is a chart pattern of three peaks, where the middle one is taller than the two on either side. A line called the neckline joins the lows between the peaks. Like every pattern, it is a record of what the crowd has already done, not a forecast of what it will do next.
How the shape forms
A chart pattern appears because the crowd trading a share keeps doing the same thing at the same price. Here, price makes a peak, falls back, climbs to a higher peak, falls back again, and then climbs to a lower peak. The middle peak is the head and the two on either side are the shoulders.
The neckline
The neckline is the level joining the lows between the peaks. It marks the point the pattern has not yet proven itself. The shape only means something once price actually closes through that line, so wait for a close beyond the neckline before you call the pattern confirmed.
Shape first, risk second
Spotting the shape is not the same as knowing what happens next. Before you place any trade, decide the exact price where you would be wrong and get out. Seeing the shape and deciding your risk are two separate steps, done in that order.
Part of a family
The head and shoulders is one of the three patterns worth knowing by sight, with the double top and the double bottom. All are built from the same two pieces: the peaks or troughs, and the neckline. A pattern fails often enough that treating it as certain is a mistake. Maetis does not give trading advice.
A head and shoulders (hypothetical numbers)
Suppose a share peaks at ₹470, falls to ₹440, climbs to ₹500, falls back to ₹440, then climbs only to ₹468 before turning down. The three peaks are ₹470, ₹500 and ₹468, with the middle one tallest. The neckline is at ₹440. A close below ₹440 would confirm the pattern; until then it is only a shape. Whoever acts on it should already have decided where they would be wrong.
Common questions
- What is a head and shoulders pattern?
- Three peaks where the middle one is taller than the two on either side, joined by a neckline.
- What is the neckline?
- The level joining the lows between the peaks. The pattern is not confirmed until price closes through it.
- Does a head and shoulders always mean the price will fall?
- No. A pattern describes what already happened and fails often enough that it should never be treated as certain.
- How is it different from a double top?
- A double top has two peaks near the same price. A head and shoulders has three, with the middle one highest.