Head and Shoulders

Head and Shoulders Pattern

A head and shoulder pattern is a technical analysis chart pattern that is used to identify potential selling opportunities in a security. It is formed when the price of a security reaches a new high, pulls back, rises to a similar high again, and then falls back down. The pattern is characterized by three distinct peaks, with the middle peak being the highest and the two other peaks being roughly equal in height. The troughs between the peaks are referred to as the "shoulders."

The head and shoulder pattern is considered a bearish reversal pattern, as it indicates that the security may be transitioning from an uptrend to a downtrend. Investors may consider selling the security when the price breaks below the neckline, which is formed by connecting the two troughs or "shoulders." This may signal a change in trend and the start of a new downtrend.

Source: Stockcharts.com

Inverted Head and Shoulders Pattern

An inverted head and shoulder pattern is a technical analysis chart pattern that is used to identify potential buying opportunities in a security. It is formed when the price of a security falls to a new low, bounces back up, falls to a similar low again, and then rises back up. The pattern is characterized by three distinct troughs, with the middle trough being the lowest and the two other troughs being roughly equal in height. The peaks between the troughs are referred to as the "shoulders."

The inverted head and shoulder pattern is considered a bullish reversal pattern, as it indicates that the security may be transitioning from a downtrend to an uptrend. Investors may consider buying the security when the price breaks above the neckline, which is formed by connecting the two peaks or "shoulders." This may signal a change in trend and the start of a new uptrend.

Source: Stockcharts.com

It's important to note that chart patterns are just one tool that investors can use to inform their investment decisions and should not be used in isolation. It's always important to consider other factors, such as a company's financial health and market conditions, before making an investment.