The Head and Shoulders pattern is one of the most famous reversalpatterns and one that gives a clear signal and entry point. The headand shoulders in an uptrend consists of three relative highs: the firstand last peaks are of nearly equal size and are the shoulders of theformation. The middle peak is greater than the other two and forms thehead of the pattern. The relative lows in between the head andshoulders form a neckline at the base of the pattern. Once the patternis completed, the neckline becomes a key support level; the market canbounce off it and reverse, or it can break through it and gathermomentum.
Reverse Head and Shoulders
The reverse head and shoulders is the same formation in adowntrending market. The head and shoulders point lower in this caseand signal a reversal of the market higher once the price crosses theneckline and closes on a daily chart.
