The Head and Shoulders chart pattern is a heavily used charting pattern, giving easily understood potential buy and sell signals.
Head and Shoulder Components
Left Shoulder: Bulls push prices upwards making new highs; however these new highs are short lived and prices retreat.
Head: Prices don't retreat for long because bulls make another run, this time succeeding and surpassing the previous high; a bullish sign. Prices retreat again, only to find support yet again.
Right Shoulder: The bulls push higher again, but this time fail to make a higher high. This is very bearish, because bears did not allow the bulls to make a new higher or even an equal high. The bears push prices back to support (Confirmation line); this is a pivotal moment – Will bulls make another push higher or have the bears succeeded in stopping the move higher.
If prices break the confirmation support line, it is clear that the bears are in charge; thus, when price closes below the confirmation line, a potential sell signal is given. Note that a downward sloping confirmation line is generally seen as a more powerful Head & Shoulders pattern, mainly because a downward sloping confirmation line means that prices are making lower lows.
Disclaimer - For educational purposes only
Head and Shoulder Components
Left Shoulder: Bulls push prices upwards making new highs; however these new highs are short lived and prices retreat.
Head: Prices don't retreat for long because bulls make another run, this time succeeding and surpassing the previous high; a bullish sign. Prices retreat again, only to find support yet again.
Right Shoulder: The bulls push higher again, but this time fail to make a higher high. This is very bearish, because bears did not allow the bulls to make a new higher or even an equal high. The bears push prices back to support (Confirmation line); this is a pivotal moment – Will bulls make another push higher or have the bears succeeded in stopping the move higher.
If prices break the confirmation support line, it is clear that the bears are in charge; thus, when price closes below the confirmation line, a potential sell signal is given. Note that a downward sloping confirmation line is generally seen as a more powerful Head & Shoulders pattern, mainly because a downward sloping confirmation line means that prices are making lower lows.
Disclaimer - For educational purposes only
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