The head and shoulders and inverted head and shoulders patterns are among the strongest reversal signals in technical analysis.
1. Head and Shoulders
* Shape: Consists of a peak (left shoulder) followed by a higher peak (head) and then a lower peak (right shoulder), all resting on a line called the neckline.
* Signal: Reversal from an uptrend to a downtrend (sell).
* Confirmation: The pattern is confirmed when the price breaks below the neckline.
2. Inverted Head and Shoulders
* Shape: It is a mirror image of the previous pattern. It consists of a trough (left shoulder) followed by a deeper trough (head) and then a shallower trough (right shoulder).
* Signal: Reversal from a downtrend to an uptrend (buy).
* Confirmation: The pattern is confirmed when the price breaks above the neckline.
Do not enter the trade until there is a confirmed actual break or breakout of the neckline. Measuring the distance from the head to the neckline gives you the expected movement target!
