What is Head and shoulders
The head and shoulders chart pattern is a reversal pattern that is formed when the price of a security forms a peak (left shoulder), a higher peak (head), and then a lower peak (right shoulder). It is usually seen as a bearish pattern and can be used to predict a downtrend in the market.
The head and shoulders pattern is formed when the price makes a high (left shoulder), then pulls back and makes a higher high (head), and then pulls back again and makes a lower high (right shoulder). The pattern is completed when the price breaks through the support level formed by the lows between the left shoulder and the head, and the right shoulder and the head. This is known as the "neckline."
Traders can use the head and shoulders pattern as a trading signal to enter a short position when the price breaks through the neckline. The distance between the high of the head and the neckline can be used to estimate the potential downside target for the trade.
It is important to remember that no single chart pattern is guaranteed to be successful, and traders should always use risk management techniques like stop loss orders to protect against potential losses.
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