The head-and-shoulders chart pattern is a popular and easy-to-spot pattern. As a rule, it is most often seen in uptrends and most reliable when found in an uptrend as well. Head and shoulders formation occurs when a market trend is in the process of reversal either from a bullish or bearish trend.
The head and shoulders pattern is found after an uptrend or downtrend. It often indicates a change in market direction when the neckline of the pattern is penetrated. As a result, the market will move the same distance above the neckline as the distance between the neckline and the peak of the head. This situation is perfect to sell operations.
In an uptrend, the situation when the right shoulder level is lower than the left one indicates a strong signal for the upcoming downtrend. In a downtrend head and shoulders formation indicates a strong signal for the price rise. If the right shoulder level is higher than the left one, the signal for the uptrend becomes even stronger.
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