What is head and shoulder pattern

Ahead and shoulder pattern is a trend reversal pattern which is used to identify the trend reversal. The pattern occurs usually after an uptrend in case of head and shoulder top pattern and vice versa for a downtrend.

The patter consists of two shoulders each one side of the head. The formation looks like a left shoulder, a head and another shoulder on right side

Left shoulder: After an uptrend, the price of the stock starts declining up to a certain point known a neckline

Head: From the neckline point the price again starts moving in the uptrend and this time the trend will much higher than the first (left) shoulder. After reaching a peak the price again starts declining to the neckline.

Right Shoulder: From the neckline, the price again starts moving in the uptrend but this time the price moves almost or equally to the height of the first (left) shoulder. After reaching a peak the price again starts declining to the neckline.

Reversal: After the formation of the head and shoulder pattern the price of the stock will be at the neckline if the neckline is unable to hold the price then the price starts moving southwards (declining), indicating the start of the reversal pattern in the stock movement.

Note: The above content is my personal views. Stock market trading is subject to market risk. Expert advice is highly recommended.