What it looks like
A high (left shoulder), a dip, a higher high (the head), a second dip, then a lower high at about the left shoulder's level (right shoulder). Draw the neckline through the two dip lows. The pattern completes when a candle closes below it. The height is from the top of the head down to the neckline.
What it means
Buyers tried three times. The middle push went highest, but the last could not match it, so their strength is fading. When price closes below the neckline, sellers have broken the lows that held during the rise. That break is the signal the whole shape exists for.
How to trade it
- 1
Mark the left shoulder, head and right shoulder, and draw the neckline through the two dips.
- 2
Confirmation: a candle closes below the neckline.
- 3
Entry: sell that close, or a retest of the neckline from below that fails.
- 4
Stop: above the right shoulder. Example on US30: head at 47,600, shoulders near 47,450, neckline 47,250. Sell the close at 47,240, stop at 47,470, a 230 point risk.
- 5
Target: head to neckline (350 points) below the neckline, about 46,900.
A close back above the neckline.
Where it works best
At the top of an extended rise on 1 hour to daily charts, especially when the head forms at a major resistance level.
WickSpeak finds head and shoulders patterns automatically and labels them on the candles that made them. Each note says what it is, how to trade it and that a close back above the neckline proves it wrong. In Playbook you can use it as a condition in a play, alone or alongside other patterns and indicators (any of the 146 patterns can be a condition), and backtest it on past candles with your own costs.
Common mistakes
- Selling the right shoulder before the neckline breaks.
- Seeing a head and shoulders in every three bumps on a chart.
- Putting the stop above the head when the pattern's logic only needs it above the right shoulder, which makes the risk much bigger than needed.
Related patterns
Questions traders ask
Is head and shoulders bullish or bearish?
The standard head and shoulders is bearish: it forms at the top of a rise and signals a turn down once the neckline breaks. The inverse version is bullish.
How do you trade a head and shoulders?
Wait for a close below the neckline, then sell the break or a retest. The stop goes above the right shoulder and the target is the head to neckline distance.
What is the neckline?
A line drawn through the two lows between the shoulders and the head. It can be flat or sloped.
What proves a head and shoulders wrong?
A close back above the neckline after the break. That means buyers have taken back the level the pattern depends on.