Head and Shoulders Pattern
In technical analysis, an indicator in which the price of a security rises to a peak, falls, rises to a higher peak and falls again, and finally rises to a third peak roughly equal to the first and falls again. While, in general, a head and shoulders pattern is considered a bearish indicator, it contains various bullish points, namely immediately before the price rises. These bullish points are called the neckline. When technical analysts see a security falling toward the neckline, they view this as a buy signal because historical patterns have shown that the security's price will rise soon thereafter. On the other hand, the third peak is considered to be a sell signal.
Head and Shoulders Pattern
What Does Head and Shoulders Pattern Mean?
A technical analysis term used to describe a chart formation in which a stock's price (1) rises to a peak and subsequently declines; (2) then rises above the former peak and again declines; and (3) rises again, but not to the second peak, and declines once more. The first and third peaks are shoulders, and the second peak forms the head.
Investopedia explains Head and Shoulders Pattern
The head and shoulders pattern is considered the most reliable trend-reversal pattern.
Related Terms:
• Bear Market
• Bull Market
• Quantitative Analysis
• Technical Analysis
• Trend Analysis
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