HEAD AND SHOULDERS TOP (REVERSAL)

A Head and Shoulders reversal pattern contains three successive peaks with the middle peak (head) being the highest and the two outside peaks (shoulders) being low and nearly equal. The lows of each peak is a neckline (support level).

Step 1-Prior Trend: There is a prior uptrend.

Step 2-Left Shoulder: The left shoulder forms a peak in an uptrend, after that price declines. The low of the decline usually remains above the trend line.

Step 3-Head: An advance takes place from the low of the left shoulder to create the top of the head, after that price goes down to make the second point of the neckline, the second point usually breaks the uptrend line.

Step 4-Right Shoulder: Price goes up from the low of the head to make the right shoulder, the peak of the right shoulder is lower than the head and in the same line with the left shoulder, price goes down from the peak of the right shoulder and break the neckline.

Step 5-Neckline: The neckline connects the low points of the left and right shoulders. The slope of the neckline decide the pattern.

Step 6-Neckline Break: The neckline broken, the pattern is complete.

Step 7-Support Turned Resistance: support is broken, it turns into resistance.