1. Reversal Patterns

1. Head and Shoulders Pattern

The Head and Shoulders is perhaps the most iconic and widely discussed chart pattern in technical analysis. It represents a classic trend reversal setup. It is typically seen after an uptrend and signals a potential shift from bullish to bearish sentiment.

Anatomy of the Pattern: The pattern has three main parts:

• Left Shoulder: A price rise followed by a decline.
• Head: A higher peak, followed by another decline.
• Right Shoulder: A lower high, mirroring the left shoulder, followed by a breakdown.

These three peaks are connected by a horizontal or slightly sloping neckline, which acts as a key support level.

Psychology:

• The left shoulder forms as buyers push the price up but sellers push back.
• The head forms as buyers make a final push, but selling pressure increases.
• The right shoulder fails to make a new high. Giving us an indication that the buyers are exhausted.
• A break of the neckline confirms the trend reversal.
  
   

Bearish Setup: Classic Head and Shoulders (Top)

• Trend before pattern: Uptrend
• Confirmation: Breakdown below neckline
• Entry: On a strong close below the neckline (preferably with above-average volume)
• Stop loss: Just above the right shoulder
• Target: Distance from head to neckline, projected down from the neckline (measured move)
  
   

Bullish Setup: Inverse Head and Shoulders (Bottom)

• Trend before pattern: Downtrend
• Confirmation: Breakout above neckline
• Entry: On breakout above neckline with volume
• Stop loss: Just below the right shoulder
• Target: Distance from head to neckline, projected upwards

Real World Tip

• A retest of the neckline after the breakout often gives a safer re-entry point for traders who missed the first move.
• Volume is critical — expect volume to shrink through the right shoulder and expand only on the breakout.

Timeframes:

• Applicable on: Daily and above for positional setups; 15m–1H on intraday
• Best suited for swing to positional trades