A three-peak reversal pattern with a higher middle peak — signals that an uptrend is exhausted and price is about to fall.
Head and shoulders is one of the oldest chart patterns in trading. It forms three peaks: a left shoulder, a higher middle peak (the head), and a right shoulder roughly the same height as the left. The lows between the peaks form a horizontal or slightly tilted "neckline." When price breaks below the neckline, the pattern is complete and a downtrend usually follows.
The reason it works is structural. The first shoulder is just a normal pullback in the uptrend. The head is the last gasp — buyers push to a new high but can't sustain it. The right shoulder is a failed retest of that high — buyers can't even reach the previous peak, which means the trend has lost its juice. When price breaks the neckline, every late buyer is trapped.
The measured move target is the distance from the head to the neckline, projected down from the breakout point. So if the head sits 200 pips above the neckline, the textbook target is 200 pips below the breakout.
BTCUSD printed a textbook daily head and shoulders in late 2021 — left shoulder at $63k, head at $69k, right shoulder at $66k, neckline at $58k. The break sent it to $30k over six months.
Frequently asked about head and shoulders
What is a head and shoulders in trading?+
A three-peak reversal pattern with a higher middle peak — signals that an uptrend is exhausted and price is about to fall.
When will I see head and shoulders used in real trading?+
After a sustained uptrend has run for weeks or months. Frequently appears at major resistance levels and key Fibonacci extensions.
What is the most common mistake traders make with head and shoulders?+
Shorting at the right shoulder before the neckline breaks. The pattern isn't complete until the break — entering early means you're guessing, not trading.
What do experienced traders know about head and shoulders that beginners don't?+
Wait for the neckline retest after the break. Most head and shoulders breakouts pull back to the neckline once before the bigger move starts. Entering on the retest cuts your risk in half.
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