Head and Shoulders

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.