Reversal Chart Patterns
Head-and-shoulders, double and triple tops and bottoms — the patterns that signal an existing trend is ending.
The head-and-shoulders pattern gets the book's most extended treatment among reversal patterns, and Murphy walks through it as three consecutive peaks — a left shoulder, a higher head, and a right shoulder roughly matching the left shoulder's height — connected along the two intervening troughs by a "neckline." The pattern is only considered complete, and only then treated as an actionable sell signal, once price closes decisively below that neckline; before that confirmation, what looks like a forming head-and-shoulders is still just three peaks that could resolve any number of other ways.
Double and triple tops and bottoms are covered as simpler variants of the same underlying logic: price tests a level, fails to break through, pulls back, then tests the same level again and fails a second (or third) time — each failed attempt weakening the conviction of the side that keeps failing and strengthening the case for a reversal once the opposite boundary (the low between the two tops, or the high between the two bottoms) is decisively broken.
What unites every pattern in this chapter is the same role-reversal logic developed in the previous chapter, playing out on a larger, more structured scale: the neckline of a head-and-shoulders top, or the low between two tops, is really just a support level being decisively broken, with all the same behavioral consequences — the traders who bought near that support now hold regret, and that broken level becomes the resistance a subsequent rally has to fight through. Reversal patterns are not a separate topic from support and resistance — they are support and resistance failing in a recognizable, repeatable shape.
The measured move is the height from the head down to the neckline, projected the same distance below the neckline after the break — presented in the book as a rough guide, not a guarantee, since actual follow-through varies considerably.
Murphy is emphatic that the shape alone is not sufficient — volume behavior across the pattern is treated as equally important confirmation. In a textbook head-and-shoulders top, volume is typically heaviest on the left shoulder, lighter on the head even though price reaches a new high there, and lighter still on the right shoulder — a declining-volume pattern into new price highs that itself signals weakening conviction behind the advance, independent of the shape. A "head-and-shoulders" shape with volume expanding into the head and right shoulder is a much less reliable reversal signal than the textbook declining-volume version, which is why the book treats volume as inseparable from pattern reading rather than a separate, optional check.
The logic extends naturally to bottoming patterns, with one twist worth noting: while declining volume into a top signals fading buying conviction, a genuine bottom typically wants to see volume expand sharply on the final low and especially on the eventual breakout above the pattern's "neckline" equivalent, since a bottom is really about a sudden, decisive return of buying interest rather than a gradual fading of selling pressure. Murphy treats this asymmetry — tops fading out quietly, bottoms reversing on a surge — as consistent with ordinary market psychology: fear tends to produce sharper, more panicked capitulation than greed produces exhaustion.
Imagine two nearly identical head-and-shoulders tops on a price chart. In the first, volume shrinks steadily from left shoulder to head to right shoulder. In the second, volume actually expands on the right shoulder. Murphy would treat the first as a textbook, higher-confidence reversal setup and the second as suspect — worth waiting on for further confirmation rather than acting on the shape alone.
The formula projecting a price target from the pattern's height is useful for setting rough expectations, but Murphy is careful that it's a guide derived from typical historical behavior, not a mechanical prediction that will play out precisely on any single occurrence. Actual follow-through after a confirmed breakout varies with the same factors that determine the pattern's reliability in the first place — how cleanly the volume pattern matched the textbook version, whether the neckline break happened on expanding volume, and what the broader primary trend from the Dow Theory chapter was doing at the time. A reversal pattern forming against a powerful primary trend is generally treated as less reliable than one forming after a primary trend has already been extended and is showing other signs of exhaustion.
- A head-and-shoulders pattern is only confirmed on a decisive neckline break, not when the third peak simply appears.
- Double and triple tops/bottoms are the same underlying logic as head-and-shoulders — repeated failed attempts at a level weaken that side's conviction.
- The measured-move target projects the pattern's height from the breakout point, treated as a rough guide rather than a guarantee.
- Volume should decline into the final peak(s) of a textbook top — rising volume into the pattern undermines the reversal signal even if the shape looks right.
- Bottoms tend to reverse on a volume surge rather than a volume fade — fear-driven capitulation looks different from greed-driven exhaustion, which is why tops and bottoms are not perfect mirror images in practice.