Head and Shoulders are trend reversal chart patterns. In theory, the height of both shoulders should be the same, and the neck line should be horizontal. In practice, it often happens that the shoulders are not the same height, or that the neck line is ascending or descending (depending on the shape of the shoulders of the figure).
The first and third peak (approximately the same height) form the shoulders.
The second top (at a height higher than that of the shoulders) forms the head.
There is no fixed rule but some authors consider that the height of the head should be 1.5 to 2 times that of the shoulders.
The neck line is determined by the two highest highs reached after the first shoulder and the head. These two high points are not always at the same level. The neck line can therefore be ascending, descending or more rarely, horizontal.
The head and shoulders figure is definitively validated at the break of the neck line. The target price is equal to the height between the neck line and the top of the head, carried over the neck line.
Notes And Statistics: #
- In 93% of the cases, the exit of the head and shoulders pattern is bearish.
- In 63% of the cases, the course achieves the goal of the head and shoulders figure when the neck line is broken.
- In 96% of the cases, the bearish movement continues at the break of the neckline.
- In 45% of cases, after exit, the price performs a resistance pullback on the neck line of the head and shoulders figure.