Head & Shoulders
Three peaks — a tall one flanked by two shorter, roughly equal ones — that mark a trend running out of strength.
A Head & Shoulders forms after a sustained uptrend, when buyers make one final push to a new high (the head) that's noticeably taller than the peak before it (the left shoulder) — then fail to hold it, sliding back down to roughly the same level the first pullback stopped at. A third rally (the right shoulder) reaches only about as high as the first, not the second — the clearest sign each successive push is weaker than the last.
The line connecting the two pullback lows is the neckline. The pattern isn't considered complete, and isn't treated as a real reversal signal, until price actually closes below that neckline — a tall middle peak on its own is just a peak.
Most wait for confirmation — a full close below the neckline, not just an intraday poke through it — before doing anything, since price can dip below a neckline and snap right back without a real reversal following. A common approach is to act on that confirmed close, with a stop placed back above the right shoulder's high — the level that, if reclaimed, would suggest the pattern failed rather than played out.
For a target, one commonly-used (if rough) method: measure the vertical distance from the head down to the neckline, then project that same distance downward from the breakout point. Many traders treat this as a guideline for scaling out gradually, not a promise of exactly where price will stop.
The most common failure mode is a false break: price closes below the neckline, triggers entries, then reclaims it within a day or two and the original uptrend simply continues. A neckline break on unusually light volume is generally treated as less trustworthy than one that comes with a real pickup in selling activity — though volume alone isn't a guarantee either.
No chart pattern has a fixed, guaranteed success rate. Even textbook-looking geometry fails a meaningful share of the time — the discipline is in defining risk (the invalidation level above) before entering, not in trusting the pattern to work.
- The neckline break, not the head itself, is the actual signal.
- The right shoulder failing to reach the head's height is what separates this from just noisy, choppy trading at a high.
- This is a reversal pattern — it only means anything after a real prior uptrend. The same three-peak shape in a flat, directionless market carries far less signal.