A head and shoulders pattern forms from three peaks — a central peak (the head) flanked by two lower peaks (the shoulders) — connected by a neckline drawn through the troughs between them. The pattern completes when price breaks below the neckline, confirming that the prior uptrend has lost the momentum to make a new high. The inverse pattern (three troughs) marks the same reversal at a market bottom.
The formula
Head Price − Neckline Price−Neckline Break Point
= Price Target
Why it matters
- —Widely regarded as one of the most reliable reversal patterns in technical analysis, precisely because it requires three distinct attempts to extend a trend, with the final attempt visibly failing.
- —The measured-move price target — the head-to-neckline distance projected below the neckline break — gives traders a concrete objective, not just a directional call.
- —Volume should ideally decline through the right shoulder and expand on the neckline break; a break on weak volume is more prone to failing.
How to read it
| Right shoulder fails to reach the head | Pattern forming — momentum already fading |
| Neckline breaks on high volume | Pattern confirmed — reversal in progress |
| Neckline breaks on low volume | Higher risk of a false breakout |