Head and Shoulders Complete Guide

What is Head and Shoulders?

The Head and Shoulders pattern is one of the most reliable reversal formations in technical analysis. It consists of three successive peaks: a left shoulder, a higher central peak (the head), and a right shoulder roughly equal in height to the left shoulder. The pattern is completed when price breaks below the neckline—a support line drawn through the troughs between the three peaks. Volume typically diminishes on each successive rally from left shoulder through head to right shoulder, confirming weakening buying pressure. The measured move target is calculated by subtracting the vertical distance from the head to the neckline from the neckline breakout point. According to Bulkowski's research, the pattern has an average decline of approximately 22% after a valid neckline break, with a failure rate around 4% for downward breakouts.

Identification Rules

1. Three distinct peaks where the middle peak (head) is higher than both the left and right peaks (shoulders)
2. The two shoulders should be roughly equal in height, though perfect symmetry is not required
3. A neckline connecting the two troughs between the peaks, which may slope slightly upward or downward
4. Volume typically decreases from left shoulder to head to right shoulder, with a spike on the neckline break
5. Pattern is confirmed only when the price closes below the neckline

Related Patterns

References

• Thomas N. Bulkowski (2005). Encyclopedia of Chart Patterns.
• John J. Murphy (1999). Technical Analysis of the Financial Markets.

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