Head and Shoulder - Reversal Pattern

The Head and Shoulders pattern is a chart formation used in technical analysis to indicate a trend reversal, specifically a bullish-to-bearish trend reversal. It is considered one of the most reliable trend reversal patterns.

Here’s how it forms:

After a long bullish trend, the price rises to a peak and subsequently declines to form a trough.

The price rises again to form a second high substantially above the initial peak and declines again.

The price rises a third time, but only to the level of the first peak, before declining again.

These three peaks form the pattern, with the first and third peaks being the shoulders, and the second peak forming the head. The line connecting the first and second troughs is called the neckline.

There’s also an Inverse Head and Shoulders pattern, which is the opposite of the Head and Shoulders pattern. It is used to predict reversals in downtrends. Head and Shoulder can form in various shapes and sizes for instance Rising Head and Shoulder, Falling Head and Shoulder, Inverse Head and Shoulder, Inverse rising and Falling Head and shoulder.

Remember, while these patterns can be highly reliable, they are not foolproof and should be used in conjunction with other indicators and analysis techniques for best results.