The Big Picture: HEAD AND SHOULDERS PATTERN

Head and Shoulders

The Head and Shoulders Top is undoubtedly the best known and perhaps the most reliable of all major reversal patterns. During the formation of this pattern, the forces of supply and demand are in relative balance. Once the distribution phase is completed, support along the bottom of the horizontal range (called the neckline) is broken and a new downtrend is established. The neckline is very often slightly upward sloping to flat line.

The Head and Shoulders Bottom is simply an inverted image of the Head and Shoulder Top. The formation of this pattern occurs exactly the same as Head and Shoulder Top pattern except it is preceded by a downtrend. It marks the transition period at the end of a downtrend and the beginning of an uptrend.