The Head and Shoulders is a classic three-peak bearish reversal chart pattern that forms at the end of an uptrend. The left shoulder and right shoulder reach roughly equal heights, while the center peak (the head) climbs to a higher high. The two troughs between the peaks define a support line called the neckline. A confirmed close below the neckline signals the reversal and sets a measured price target.

How to Identify

• Forms after a sustained uptrend lasting several weeks or months
• Left shoulder: price peaks with above-average volume, then pulls back to neckline
• Head: price rallies to a higher high — often on lower volume than the left shoulder
• Right shoulder: price makes another peak at roughly the left shoulder level; volume declines further
• Neckline: drawn connecting the two troughs; may slope slightly up or down
• Breakdown confirmed by a close below the neckline, ideally with elevated volume
• Price target: measure from head to neckline; project that distance down from the neckline break

Market Psychology

Each successive peak shows buyers with less strength. The head represents peak optimism — but sellers begin absorbing supply. By the right shoulder, bulls can no longer push to a new high. Institutional distribution is occurring. When the neckline breaks, stop-losses from long holders trigger cascading selling.

A common behavior is a brief retest of the neckline (now resistance) after the initial breakdown — this is the last exit for late sellers and the ideal put entry for options traders.