price patterns/chart patterns -
Head and Shoulders Price/Chart Patterns Part 1
Head and Shoulders Price/Chart Patterns Part 1
Head and shoulders is a Reversal Patterns, at Tops The
head and shoulders is probably
the most reliable of all Price Patterns / Chart
Patterns but it
occurs at both market tops and market bottoms.
T
his typical Head and Shoulders (H&S) distribution pattern consists of a final rally (the
head) separating two
smaller, although not necessarily identical,
rallies (the shoulders). If the two shoulders
were trends of intermediate duration, the first
shoulder would be the penultimate advance in the
bull market, and the second the first bear
market rally.
T
he head would, of course,
represent the final intermediate rally in the
bull market. Volume characteristics are of
critical importance in assessing the validity
of these patterns. Activity is normally heaviest
during the formation of the left shoulder and
also tends to be quite heavy as prices approach
the peak. The real tip-off that an Head and
Shoulders (H&S) pattern
is developing comes with the formation of the
right shoulder, which is invariably accompanied
by distinctly lower volume. Quite often, the
level of volume contracts as the peak of the
right shoulder is reached. The line joining the
bottoms of the two shoulders is called the
neckline.
The violation of
the neckline also represents a signal that the previous series of rising
peaks and troughs has now given way to at least
one declining peak and trough. The right
shoulder represents the first lower peak and the
bottom of the move following the breakdown
represents a lower trough.
price patterns/chart patterns -
Head and Shoulders Price/Chart Patterns Part 1
