Head and Shoulders
Definition
A chart pattern consisting of three peaks — the middle peak (head) higher than the two flanking peaks (shoulders) — signaling a potential trend reversal.
Explanation
The head and shoulders pattern is considered one of the most reliable bearish reversal patterns. The 'neckline' connects the two troughs between the three peaks. A break below the neckline confirms the pattern and suggests a price decline roughly equal to the distance from the head to the neckline. An inverse head and shoulders (three troughs) signals a bullish reversal. While no pattern works perfectly, head and shoulders has one of the higher success rates in technical analysis literature.
How Stoquity Uses This
Stoquity incorporates head and shoulders analysis across its portfolio management platform, providing real-time monitoring and AI-powered insights for every portfolio.
See This in Action
Explore how head and shoulders applies to real portfolios on Stoquity.
Start Free →