Trends/Reversal patterns

Head and shoulders

Three peaks in a row where the middle one is the highest, with a line under the two dips between them.

Reversal patternsBest on 6M, 1Y, 3YAlso called H&S top

Illustration of the head and shoulders shape. It is a sketch, not real price data.

What it shows

The pattern has a left shoulder, a higher head and a right shoulder that is about as high as the left one. A line through the two lows between the peaks is called the neckline.

It is called a reversal pattern because it appears after a rise and describes buyers failing to make a higher high. The pattern is complete only when price closes below the neckline. Until then it is just three peaks.

How we find it

The same code that draws it on your chart follows these steps, with the same result every time.

Find three swing highs in order, where the middle one is the highest.
Require the two outer highs to be within 15% of each other in height.
Draw the neckline through the two swing lows between the peaks.
Mark the pattern complete when a close falls below the neckline by more than the margin.

Starting values: Shoulder match within 15%; Minimum head over shoulders 3% of price; Margin below neckline 1.0%. These are proposed and will be tuned on real price data before launch.

How to read it

Red dots are the three peaks.
The blue line is the neckline.
Volume is often described as lower on the right shoulder than the left, but our data shows it only if you add a volume view.

Status labels you may see

Label	What it means
Forming	Three peaks found, neckline not broken.
Testing the neckline	Close within 2% above the neckline.
Neckline broken	Close below the neckline.

What cancels it

A close above the right shoulder's high before the neckline breaks.

What traders check next

Whether the neckline was broken by a close or only a wick.
Volume on the right shoulder and on the break.
Whether price came back to the neckline after breaking it.

Limits

Many head and shoulders shapes never break the neckline.
The shoulders are never exactly equal, so the rules decide what counts.
It appears in hindsight more clearly than in real time.

Try it in forecastviz

Open any ticker and choose Reversal patterns → Head and shoulders in the left menu.
Switch between 6M, 1Y, 3Y to see how the picture changes.
Compare with Inverse head and shoulders and Complex head and shoulders on the same chart.

Open on a ticker

Questions

Is the neckline always flat?

No. It can slope up or down. We draw it through the two lows between the peaks.

How reliable is it?

Studies vary. We do not publish a rate.