Head and shoulders

The head and shoulders pattern is a bearish reversal formation seen on price charts. It comprises a left shoulder, a higher head, and a lower right shoulder, all resting on a common neckline. This neckline connects the lows between the shoulders and the head. A break below this neckline after the right shoulder suggests a shift in market sentiment.

For a retail trader, identifying this pattern can signal a potential short entry after the neckline breaks. The typical price target is calculated by measuring the vertical distance from the head's peak to the neckline and projecting it downwards from the breakout point. Traders often place a stop-loss order above the right shoulder to manage risk.