The head-and-shoulder chart pattern is bearish chart pattern that often
appears at the end of an uptrend. It has four major components:
-The left-hand side shoulder is the high before the last high during the uptrend.
- The head that is the highest high or the peak of the bullish trend.
- The right-hand side shoulder is the first lower high after the head.
- The neckline is the horizontal line that one draws through the last higher low
of the bullish advance.
View the chart
Image = "Stock chart that is exhibiting a head-and-shoulder chart pattern"
The red line on the chart is the neckline.
The green line on the chart is the midpoint profit target.
The orange line on the chart is the ultimate profit target.
The Pink vertical line on the chart is the height of the
head-and-shoulder chart pattern that professional traders use to set
the profit target.
There are times when the head-and-shoulder chart pattern is not in horizontal position
as it is the case on the chart above.
In this instance, traders refer to it as the slanted head-and-shoulder chart pattern.
A bearish chart pattern often form
1/ at the end of a downtrend;
2/ at a resistance level;
3/ at a bullish price target zone;
4/ and during a bearish trend.
Consequently, one will habitually see other bearish chart patterns and head-and-shoulder
chart pattern in those instances.
When does it become bearish?
The head-and-shoulder chart pattern becomes bearish at the time when the price finds a
resistance below the neckline.
If the price temporarily dips below the neckline, but quickly rises above it and finds a support
that will negate the initial bearish trading signal. Moreover, one ought not to presume that
the pattern is already in place as the pattern is still developing.
How to set a price target?
To set a profit target after one takes a bearish position, one will measure the height of the
head-and-shoulder chart and project it below the neckline. That will coincide with the initial
Nevertheless, one must be willing to secure first gains when the price reaches the midpoint of
the primary profit target.
If the price falls beyond the original target, one will project the height beyond the initial target
to set a secondary profit target. In all cases, one ought to take into consideration that many
market participants will customarily take the first profit on or near the midpoint of the initial
To stay away from the head-and-shoulder chart pattern day or swing trading mistakes, one ought
to recognize that the pattern is only a trading setup. As a result, one will instigate a top-down
trading method in view to take a valid trading signal on particular time frame. Subsequently, one
will enter the trade at a low-risk entry point when the short term and medium term side with
the initial bearish trade setup.
Watch the video below
How To Trade The Head And Shoulder Chart Pattern Like A Pro
technical trader. Discover the correct steps one should take to quickly
improve the head and shoulder chart pattern trading.
In less than one hour, you will be on your way to trade that chart
pattern more profitable. Be ready to improve your chart analysis.
Watch, rate and share this video tutorial today.
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