Head and Shoulders Pattern: Spotting Reversals in Style
The head and shoulders chart pattern is a classic trend reversal signal — most commonly seen during an uptrend.
And yes, while it might also remind you of dandruff shampoo commercials… 😄
Let’s keep the flakes out of it and focus on what really matters: price reversals!
📉 Head and Shoulders (Bearish Reversal)
This pattern forms when:
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A peak forms — this is the left shoulder
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Followed by a higher peak — the head
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Then a lower peak — the right shoulder
To complete the pattern, draw a neckline by connecting the two lowest points between the peaks (the troughs).
The slope of this neckline can be upward or downward — though a downward-sloping neckline tends to produce a more reliable signal.
🧠 In this pattern:
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The head is the highest point.
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The shoulders are lower peaks that don’t surpass the head’s height.
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Once the price breaks below the neckline, a reversal is confirmed.
📏 To estimate a price target, measure the vertical distance from the head to the neckline.
That’s roughly how far the price is expected to fall after breaking the neckline.
In the example chart, once the neckline was broken, price dropped nearly the same distance.
And yes, we know — it moved even lower afterward, but hey… don’t be greedy! 🤑
📈 Inverse Head and Shoulders (Bullish Reversal)
As the name suggests, this is just the upside-down version of the head and shoulders pattern. 🙃
It forms after a downtrend and looks like this:
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A valley forms — the left shoulder
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Followed by a lower valley — the head
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Then a higher valley — the right shoulder
The neckline is drawn the same way, connecting the highest points between the valleys.
🧠 In this setup:
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We place a buy (long) order just above the neckline.
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To calculate the price target, measure from the head to the neckline, then project that distance upward.
In the chart example, once the neckline broke, the price made a strong move higher — just as expected!
Final Thoughts
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These patterns don’t guarantee profits, but they’re great tools to anticipate possible reversals.
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Once your target is hit, celebrate your gains.
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You’ll also learn trade management techniques later in the course to help you secure profits while keeping trades open for more potential upside.
Keep practicing how to spot these patterns — because once you can recognize them, you’ll start seeing opportunities everywhere.