What Is A Head and Shoulders Top or Bottom ?

What Is A Head and Shoulders Top or Bottom ?
What Is A Head and Shoulders Top or Bottom ?

Head and Shoulders Top or Bottom—This technical indicator consists of a left shoulder, a head, and a right shoulder and a line drawn as the neckline and occur in many different daily charts over the course of time.

The left shoulder is formed at the end of an extensive move during which volume is noticeably high. This type of indicator takes time to develop usually a couple of months in my opinion.

After the peak of the left shoulder is formed, there is a subsequent reaction and prices slide down to a certain extent which generally occurs on low volume. The prices rally up to form the head with normal or heavy volume and subsequent reaction downward is accompanied with lesser volume. The right shoulder is formed when prices move up again but remain below the central peak called the Head and fall down nearly equal to the first valley between the left shoulder and the head or at least below the peak of the left shoulder. Volume is lesser in the right shoulder formation compared to the left shoulder and the head formation. A neckline is drawn across the bottoms of the left shoulder, the head and the right shoulder.

When prices break through this neckline and keep on falling after forming the right shoulder, it is the ultimate confirmation of the completion of the Head and Shoulders top formation. In my opinion I have used this technical indicator in the past and I think it is one of the more reliable indicators out there especially if you use it with some other indicators it can help improve your trading results.

There are also head and shoulder bottoms that have the exact same characteristics just the opposite because a head and shoulders top is predicting a top while a head and shoulders bottom is telling you that the lows might be in just like the copper chart back in August when it had a head and shoulders bottom.

 

 

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