Definition
Head and Shoulders is a bearish reversal pattern forming after an uptrend. It has three peaks: left shoulder, head (highest), and right shoulder. The neckline connects the lows. A break below the neckline confirms the reversal with a target equal to the head-to-neckline distance.
Formula
Price Target = Neckline - (Head - Neckline)
Example
If head is at $60, neckline at $50, target is $40 ($50 - $10). The pattern takes weeks to months to form. Volume typically decreases on each successive peak.
FAQ
What is Head and Shoulders Pattern?
A reversal pattern with three peaks, the middle being highest.
How do you calculate Head and Shoulders Pattern?
A common formula for Head and Shoulders Pattern is: Price Target = Neckline - (Head - Neckline)
Why is Head and Shoulders Pattern important?
Head and Shoulders Pattern helps investors evaluate chart patterns and make more informed decisions.