Head and Shoulders Pattern
📈 Investing
Quick Definition
The Head and Shoulders pattern is a chart formation that predicts a bullish-to-bearish trend reversal. It is recognized by three peaks, with the middle peak (head) being the highest and the two outside peaks (shoulders) being lower and roughly equal in height.
Examples
- 1A stock price rises to $50, drops to $45, climbs to $55, falls back to $45, and then rises again to $50 before declining. This forms a classic head and shoulders pattern, indicating a potential sell signal.
- 2During a market analysis, a trader identifies a head and shoulders pattern in the cryptocurrency market, suggesting a possible downturn after a period of bullish trends.
- 3An investor notices a head and shoulders formation on a major index, prompting them to adjust their portfolio to mitigate potential losses.
Tags
chart patternstechnical analysisstock tradingmarket analysistrend reversal
Related Terms
Other terms you might find helpful
Bear Market
A bear market refers to a period in which stock prices fall by 20% or more from recent highs, typically leading to widespread pessimism and negative investor sentiment.
Bull Market
A bull market refers to a financial market condition where prices are rising or are expected to rise.
Stock Market
The stock market is a collection of markets where stocks (shares of ownership in businesses) are bought, sold, and issued, reflecting the economic trends and the performance of companies.
Technical Analysis
Technical analysis is a method used to evaluate and predict future prices of securities based on historical price and volume data.
Quick Info
Category:Investing
Difficulty:intermediate
Last Updated:6/19/2025