The well known head and shoulders pattern is formed by three peaks; the center peak, or head, is slightly higher than two lower, and not necessarily symmetrical, shoulders. The line joining the bottoms of the two shoulders is called the neckline. Due to fluctuations, the neckline is rarely symmetrical or perfectly horizontal.
The pattern isn't complete until the neckline is broken. It is often good to wait for confirmation - for example, two successive closes below the neckline. Remember, markets often bounce back to the Neckline after the breakout and this becomes a new level of resistance.
Volume should be assessed to confirm the validity of these patterns. Volume is normally heaviest during the formation of the left shoulder and also tends to be quite heavy as prices approach the peak. The real confirmation of a developing Head and Shoulders pattern comes with the formation of the right shoulder, which is invariably accompanied by distinctly lower volume.
Some traders use the distance between the neckline and the top of the head to project a "price objective." The price objective is determined by measuring from is the top of the head to the neckline, and using this distance from the breakout point downwards.
An Inverted Head and Shoulders pattern is a mirror image of the Head & Shoulders pattern (forming a market bottom).
Double Tops
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