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.


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