Head & Shoulders Pattern

A reversal signature pattern, also known as a head and shoulders pattern, is a common and reliable trend in finance. It can be either negative or positive, depending on whether it is a typical head and shoulders or an inverted one. The pattern consists of a rally, followed by a reaction on lower volume, creating the left shoulder. The head is characterized by a high-volume rally surpassing the previous one, followed by a light-volume reaction to the previous bottom. The right shoulder is formed by a failed attempt to exceed the head's height and an ensuing reaction. If the right shoulder is lower than the left, it indicates a potentially more severe decline. The major decline begins when the last reaction breaks a horizontal line drawn along the previous lows from the left shoulder and head. The key difference between a head and shoulder top and bottom is the large burst of activity on the breakout of the bottom.