What is a head and shoulders pattern?
In one line: Head and shoulders is a chart shape with three peaks: a middle peak (the head) higher than the two either side (the shoulders), and a neckline under them.
What it looks like
Picture a person's outline: a shoulder, a head, a shoulder.
- Left shoulder: price climbs to a peak, then dips.
- Head: it climbs to a higher peak, then dips again.
- Right shoulder: it climbs once more, but stops below the head, then turns down.
- Neckline: a line joining the two dips between the peaks.
The pattern only counts once price closes below the neckline.
A simple example
A stock forms these points:
- Left shoulder peak: $64. Dip to $58.
- Head peak: $70. Dip to $58.40.
- Right shoulder peak: $63.50.
The neckline joins $58 and $58.40, roughly flat around $58. Price then falls and a daily candle body closes at $57.20. That's the confirmation.
Look at the right shoulder. It's a Lower high: the uptrend couldn't make a new top. That's what the whole shape is really showing you.
Where a stop would go
For a short, many traders put the stop above the right shoulder ($63.50), not above the head. It's closer, so the size can be bigger for the same risk. Size it with the position size calculator.
A common rough target measures the head to the neckline ($70 − $58 = $12) and projects it down from the neckline: about $46. A math example, not a promise.
The inverse version
Flip it upside down and you get an inverse head and shoulders: three lows, the middle one lowest, at the end of a fall. It confirms with a close above the neckline. Everything else mirrors.
Why it matters
It's one of the best-known Reversal shapes. It shows a trend failing in stages: one more push (the head), then a weaker one (the right shoulder). The full walkthrough is in our head and shoulders guide.
A common mistake
Seeing it everywhere. Any three bumps can look like a head and shoulders if you want them to. Without a clear trend before it and a body close through the neckline, it's just noise. And it still fails often, so the stop comes first.
Questions
Is head and shoulders bullish or bearish?
The normal version, at the top of an uptrend, is bearish. The inverse version, at the bottom of a downtrend, is bullish.
Does the neckline have to be flat?
No. It can slope up or down a little. Draw it through the two dips and watch for a close through it.
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