Investor Glossary-head and shoulders patternInvestor Glossary-head and shoulders patternInvestor Glossary-head and shoulders patternInvestor Glossary-head and shoulders patternInsightful stock market charts - Click here
investor
Categories    # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Head And Shoulders Pattern

The HTML to link to this page
 

A head and shoulders pattern is a technical analysis charting pattern that signals the reversal of an uptrend -- it's a bearish reversal signal. Three peaks, with the middle peak the highest, and two valleys that touch a support level characterize a head and shoulders pattern. The support level of the head and shoulders pattern is also referred to as the neckline. Initially, buying pressure is strong when the peak of the left shoulder in the head and shoulders pattern forms. A relatively short sell-off completes the left shoulder of the head and shoulders pattern. A new advance that reaches a peak higher than the left shoulder, followed by another sell-off to support (i.e. the neckline) forms the head of the head and shoulders pattern. Sometimes the formation of the head in the head and shoulders pattern will occur on lower trading volume than was in process for the left shoulder which is another indication that support for the security is weakening. The right shoulder of the head and shoulders pattern reaches a peak lower than the head and is often in line with the left shoulder. Traders consider the reversal signaled by the head and shoulders pattern confirmed when the sell-off from the peak of the right shoulder breaks below the neckline (preferably on increasing volume). The target price for the head and shoulders pattern is determined by calculating the price differential between the neckline and the peak of the head and then subtracting this differential from the neckline.



Rate this Head And Shoulders Pattern definition...

Learn about investing with the Investor Glossary Term of the Day


Click here for insightful stock market charts. Where is the market headed? The answer may surprise you. Find out
with the exclusive & Barron's recommended charts of Chart of the Day.


Popular Terms: Key Rate Duration, EBITDA, phantom income, debt service coverage, inflation, liquidity ratio, wholly-owned subsidiary, limit order, Zero Cost Collar, FTSE, LIBOR, required rate of return, covered put, 401a, class C shares, diluted share, annual return, APR, stock market close, VIX, current ratio, labor relations, 144a, ex-dividend date, 1035 exchange, cancelled check, per diem, implied volatility, real GDP, minority interest, margin rate, command economy, ex-dividend, quality assurance, irrevocable trust, risk management, in escrow, reverse mortgage, retained earnings, deferred tax, dividends payable, average price per share, option premium, balance sheet, open position, 1031 exchange, stock split, FICO score, deferred revenue


Accounting | Banking | Bonds | Brokers | Economy | Futures | Mutual Funds | Options | Real Estate | Retirement | Stocks | Taxes | Technical Analysis
Home | Term of the Day | Suggest a Term | Chart of the Day | Dogs of the Dow
©2004-2015 Investor Glossary - All rights reserved - Terms of Use