Head and Shoulders

H&Shead and shoulders patterninverse head and shoulders

The head and shoulders is a reversal chart pattern consisting of three peaks where the middle peak (head) is the highest, flanked by two lower peaks (shoulders), signaling a potential trend change from bullish to bearish.

Current Macro RegimeSTAGFLATION→ STABLE

The macro regime is STAGFLATION STABLE — growth decelerating (GDPNow 1.3%, consumer sentiment 56.6, housing deeply contractionary) while inflation is sticky-to-rising (Cleveland Fed CPI Nowcast 5.28%, PCE Nowcast 4.58%, GSCPI elevated). The bear steepening yield curve (30Y +10bp, 10Y +7bp 1M) with r…

Analysis from Apr 18, 2026

What Is the Head and Shoulders Pattern?

The head and shoulders is one of the most recognized and widely studied reversal patterns in technical analysis. It forms at the end of an uptrend and consists of three successive peaks: a left shoulder, a higher central peak (the head), and a right shoulder at approximately the same level as the left. A line connecting the troughs between these peaks forms the neckline, which serves as the trigger level.

The pattern reflects a specific psychological progression. The left shoulder represents the final strong push of the existing uptrend. The head reaches a new high but fails to attract sustainable follow-through. The right shoulder shows a notably weaker rally that cannot even reach the head's level, demonstrating that buying enthusiasm is fading and sellers are gaining confidence.

How Traders Trade the Pattern

The classic entry triggers when price breaks below the neckline after forming the right shoulder. Conservative traders wait for a close below the neckline rather than an intraday pierce. The most conservative approach waits for a retest of the broken neckline from below (as resistance) before entering short.

Volume confirmation strengthens the signal. Ideally, volume is highest on the left shoulder, lower on the head, and lowest on the right shoulder, showing progressive decline in buying interest. A surge in volume on the neckline break confirms institutional selling.

The measured move target is the distance from the head to the neckline, projected downward from the breakout point. The stop loss goes above the right shoulder.

Inverse Head and Shoulders

The inverse head and shoulders is the bullish mirror pattern that forms at market bottoms. Three troughs form, with the middle trough being the deepest. A break above the neckline signals a bullish reversal. This pattern is particularly powerful when it follows an extended downtrend and appears at a major support zone.

Not all head and shoulders patterns are perfectly symmetrical. The shoulders can differ in height and width. Slanted necklines are common. The key structural requirement is that the right shoulder peak is lower than the head, demonstrating weakening momentum.

Frequently Asked Questions

▶How do you identify a head and shoulders pattern?

A head and shoulders pattern has five components: a left shoulder (a peak followed by a decline), a head (a higher peak followed by a decline to roughly the same level as the first decline), a right shoulder (a lower peak than the head, roughly equal to the left shoulder), and a neckline connecting the two troughs between the shoulders and head. The pattern is confirmed when price breaks below the neckline after forming the right shoulder. Volume typically decreases from the left shoulder to the head to the right shoulder, showing diminishing buying enthusiasm.

▶What is the target for a head and shoulders breakout?

The measured move target is calculated by taking the vertical distance from the top of the head to the neckline and subtracting that distance from the neckline breakout point. For example, if the head peaks at $60, the neckline is at $50, and the neckline breaks at $50, the price target would be $40 ($50 minus $10). This method provides a minimum expected move. Some traders use Fibonacci extensions of this measured distance for additional targets. The pattern achieves its measured move target roughly 55-65% of the time according to historical pattern studies.

▶What is an inverse head and shoulders?

An inverse (or reverse) head and shoulders is the bullish counterpart that forms at market bottoms. It consists of three troughs where the middle trough (head) is the lowest, flanked by two higher troughs (shoulders). The neckline connects the two peaks between the troughs. A breakout above the neckline signals a bullish reversal. Volume should ideally increase on the neckline breakout, confirming institutional buying. The measured move target is the head-to-neckline distance projected upward from the breakout point. Inverse head and shoulders patterns are often considered more reliable than their bearish counterparts.

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