Head and Shoulders Pattern
A chart pattern of three peaks, with a higher middle peak flanked by two lower, roughly similar peaks, commonly interpreted as a signal that an uptrend is reversing into a downtrend.
A head and shoulders pattern consists of three successive price peaks: a higher central peak (the "head") flanked on both sides by two lower, roughly similar peaks (the "shoulders"), with a line connecting the lows between the peaks forming what's called the "neckline." The pattern is traditionally interpreted as a bearish reversal signal, suggesting a prior uptrend is losing momentum and may be turning into a downtrend, becoming confirmed in the view of most technical analysts once price decisively breaks below the neckline.
An inverse head and shoulders pattern is the mirror image — three successive troughs with a lower central trough flanked by two higher, roughly similar troughs — interpreted as a bullish reversal signal suggesting a downtrend may be turning into an uptrend. Like other chart patterns, a head and shoulders formation reflects a historically observed tendency rather than a guaranteed outcome, and traders commonly wait for the neckline break to be confirmed, ideally with supporting volume, before treating the pattern as validated.
Examples
- A head and shoulders pattern is typically considered confirmed once price decisively breaks below the neckline connecting the lows between its three peaks.
- An inverse head and shoulders pattern, with a lower central trough flanked by two higher troughs, is interpreted as a bullish signal rather than the bearish signal its standard counterpart gives.