Head and shoulders pattern (and inverse)
A head and shoulders is a reversal shape with three peaks: a left shoulder, a higher head, and a right shoulder at about the same height as the left. The inverse version flips it upside down at the lows.
What it looks like
The three peaks are separated by two dips whose lows form the neckline. Traders typically treat a close through the neckline as the confirmation that the pattern is complete. An inverse head and shoulders shows three troughs, with the middle one lowest.
Try it on real charts
Each chart below is a real stock on a real date. Call it bullish or bearish, then see what happened over the next 10 trading days.
The rules we use
Many chart examples online are loose. In SwipeTrainer a head and shoulders must pass a strict check before it is used:
- A prominent head: the head extends at least 4% beyond both shoulders.
- Level shoulders: the two shoulders are within about 5% of each other.
- Room between peaks: at least 5 trading days separate the shoulders from the head.
- The head leads the chart: no higher high (or lower low for the inverse) exists in the window.
- A fresh right shoulder: it formed in the last couple of weeks, so the pattern is live.
- Neckline intact: the chart ends before the neckline has been broken.
How traders use it
The neckline is the key level. Traders usually wait for a close through it, often with a volume pickup, and measure the height of the head to the neckline for a rough target. Volume often shrinks as the right shoulder forms. The pattern fails often enough that stops matter.
Common mistakes
- Seeing the pattern before the right shoulder has formed.
- Drawing a sloppy neckline to make it fit.
- Trading before the neckline breaks.
- Forgetting that a flat head and shoulders without a trend before it means little.
Practise this pattern on your phone
SwipeTrainer is a free game: swipe bullish or bearish on hundreds of real historical charts and learn what happened and why.
Frequently asked questions
What is a head and shoulders pattern?
A three-peak reversal shape with a higher middle peak. It is usually read as a sign that an uptrend is ending, once the neckline breaks.
What is an inverse head and shoulders?
The mirror image at the lows: three troughs with the middle one lowest, usually read as a sign a downtrend may be ending.
How do you confirm a head and shoulders?
Most traders wait for a close beyond the neckline, ideally with strong volume. Without that, it is only a possible pattern.