Head and shoulders pattern
Also called: Head and shoulders, H&S, Inverse head and shoulders, Omuz baş omuz, OBO, TOBO
A three-peak pattern with the middle peak highest; a close through the neckline signals the uptrend's structure has broken and turned down.
4 min read · one puzzle on the page
What does a head and shoulders tell you?
A head and shoulders is a three-peak structure at the end of an uptrend. The left peak is the left shoulder, the higher middle peak is the head, and the lower right peak is the right shoulder. The line through the lows between them is the neckline.
What it really shows is a trend losing its structure. A healthy uptrend walks on higher highs and higher lows. After the head, price can't make a new high and the right shoulder stays below it; for the first time buyers can't even reach the previous peak.
The final blow is the neckline break. When price closes below that line, the last higher low is gone and nothing is left of the uptrend's structure. The mirror version after a decline, the inverse head and shoulders, points higher.
How do you spot it on a chart?
You need a clear uptrend first; a reversal pattern needs something to reverse. The left shoulder looks like an ordinary trend high. Price then makes a higher peak, the head, but the pullback falls back near the left shoulder's low. That's the first warning: the new high didn't bring a lasting advance.
The right shoulder is a weak rally that stalls below the head. Shrinking candles, longer upper wicks and, if you can see it, fading volume all say buyers are tiring. Connect the two lows to draw the neckline; it can be flat or gently sloped.
Confirmation is a candle closing below the neckline, not a wick poking through. After the break, price often comes back up to the neckline; if old support has turned into resistance, it gets rejected there with upper wicks. The textbook target projects the head-to-neckline height down from the break.
The logical stop sits a little above the right shoulder. If price clears it, the idea that buyers are exhausted falls apart. A stop above the head is much wider and usually further than needed. Measure the distance as 1R and size the position to fit it.
Try it on a chart
There's no complete head and shoulders on this chart, but it asks the pattern's core question: after the rally, a pullback closed below the previous low and price is now trying to recover. Check whether the sequence of higher highs and higher lows is still intact, then decide for yourself where your idea would be proven wrong.
Price rallied, then pulled back below the previous low; now it's trying to recover. What do you do?
No sign-up needed. Make your call; when the chart opens you'll see why.
The most common mistake
Selling before the neckline breaks. While the right shoulder is forming the pattern looks finished, but as long as the neckline holds, the uptrend's structure is still standing. Plenty of so-called right shoulders turn out to be halfway points on the way to a new high.
Calling any three peaks a head and shoulders. If the right shoulder climbs above the head there's no pattern, just a continuing uptrend. If one shoulder took three candles and the other fifty, you're forcing the read.
Selling the bottom of the breakout candle. Enter at the low of the big red candle that cracks the neckline and your stop above the right shoulder is a long way off. If you missed the move, waiting for a retest is calmer; if it never comes, there's no trade.
When doesn't it work?
When a strong uptrend is running on the higher timeframe, a head and shoulders on the small chart is often just a correction. Price breaks the neckline, dips a little and bounces off the bigger trend's support. So check the bigger chart first: if the 4-hour trend is still up, the pattern on the 5-minute promises a short correction at most.
A strong support right below the neckline can stall the break straight away. The target may look far on paper, but buyers waiting along the way cut the move short.
Because everyone knows the pattern, stops and pending sell orders pile up under the neckline. Price wicking below the line and closing back above it is common; that's a sweep, not a break, and it catches the sellers on the wrong side.
Frequently asked questions
Is head and shoulders bullish or bearish?
The classic head and shoulders appears at the end of an uptrend and is a bearish reversal pattern. The middle peak is the highest, the right shoulder stays below it, and a close through the neckline means the uptrend's structure has broken. Its mirror, the inverse head and shoulders, forms after a decline and signals a bullish reversal when the neckline breaks upward.
Where do you put the stop on a head and shoulders?
On a short, the stop usually goes a little above the right shoulder. If price clears it, the idea that buyers are exhausted is invalid. Some traders place it above the head, but that means a much wider risk. If you entered on the retest, you can also put it above the top of the pullback that was rejected at the neckline.
What if the neckline is sloped?
The neckline doesn't have to be flat; the line through the two lows can slope up or down. A downward-sloping neckline means the right low is lower, so buyers are even weaker. With an upward-sloping one, the break comes later and from a lower price relative to the head. Either way, confirmation is the same: a candle closing below the line.
