Harmonic and chart patterns
Head and shoulders
Three peaks with the middle one highest; a break of the "neckline" through the lows between them signals a reversal.
The idea in plain words
The left shoulder and head are made in an uptrend. The right shoulder fails to reach the head's high: buyers are weaker. When the price breaks the neckline, the uptrend has turned. Upside down, it is a bottom pattern.
How it is calculated
Click the start, left shoulder, first low, head, second low, right shoulder and the end. The tool draws the neckline through the two lows, then the targets (61.8% and 100% of the head's height measured from the neckline) and a stop beyond the right shoulder.
Target after the break ≈ neckline − (head − neckline)How to use it
- Sell (or exit longs) on a close below the neckline; place a stop above the right shoulder.
- Measure the target as the head's height projected from the neckline.
Drawing conclusions
- Volume often falls on the right shoulder and rises on the break.
Example
Head at 1.1200, neckline at 1.1000: after the break, the target is about 1.0800.
Prices in examples are illustrative.
Watch out for
- Many patterns never break the neckline; wait for the break.
A little history
Described by Richard Schabacker in the 1930s and by Edwards and Magee in "Technical Analysis of Stock Trends" (1948).
Educational content only. No indicator or pattern predicts the future, and nothing here is investment advice.