Head And Shoulders Pattern

AAA

DEFINITION of 'Head And Shoulders Pattern'

A technical analysis term used to describe a chart formation in which a stock's price:

1. Rises to a peak and subsequently declines.
2. Then, the price rises above the former peak and again declines.
3. And finally, rises again, but not to the second peak, and declines once more.

The first and third peaks are shoulders, and the second peak forms the head.

Head And Shoulders Pattern

INVESTOPEDIA EXPLAINS 'Head And Shoulders Pattern'

The "head-and-shoulders" pattern is believed to be one of the most reliable trend-reversal patterns.

VIDEO

Loading the player...
RELATED TERMS
  1. Technical Analysis of Stocks and ...

    The academic study of historical chart patterns and trends of ...
  2. Double Top And Bottom

    Chart patterns in which the quote for the underlying investment ...
  3. Mat Hold Pattern

    A pattern found in the technical analysis of stocks that ultimately ...
  4. Cup and Handle

    A pattern on bar charts resembling a cup with a handle. The cup ...
  5. Bear

    An investor who believes that a particular security or market ...
  6. Technical Analysis

    A method of evaluating securities by analyzing statistics generated ...
RELATED FAQS
  1. How are Multiple Tops patterns interpreted by analysts and traders?

    A multiple tops chart pattern occurs in an ongoing uptrend and indicates the trend is nearing exhaustion. If a security repeatedly ... Read Full Answer >>
  2. How do I identify a Diamond Top Formation?

    Technical analysts and traders look to diamond top formations as possible reversal pattern signals. The only way to identify ... Read Full Answer >>
  3. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  4. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  5. How can a company execute a tax-free spin-off?

    The two commonly used methods for doing a tax-free spinoff are either to distribute shares of the spinoff company to existing ... Read Full Answer >>
  6. How are American Depository Receipts (ADRs) priced?

    The price of an American depositary receipt (ADR) is determined by the bank or other financial institution that issues it. ... Read Full Answer >>
Related Articles
  1. Forex Education

    Introducing The Bearish Diamond Formation

    Profit-taking opportunities abound using this lesser-known pattern. Find out how.
  2. Trading Strategies

    How To Trade The Head And Shoulders Pattern

    The head-and-shoulders chart pattern is a popular and easy-to-spot pattern - once a trader is aware of what they are watching for.
  3. Professionals

    Are Stock Buybacks Always Good for Shareholders?

    Stock buyback programs aren't always done with the interests of shareholders in mind. It's important to try to understand the motivation behind such moves.
  4. Chart Advisor

    Healthcare Stocks Continue to Be a Good Bet

    Here are four stocks in the healthcare sector that have already put up big numbers, and could still go higher, if they breakout to the upside.
  5. Fundamental Analysis

    Explaining Price Targets

    A price target is what an investment analyst projects a security’s future price to be.
  6. Fundamental Analysis

    Present Value Interest Factor of Annuity (PVIFA)

    PVIFA can be used to calculate the present value of a series of annuities by considering cash flows and depreciation.
  7. Chart Advisor

    ChartAdvisor for July 30 2015

    Weekly technical summary of the major U.S. indexes.
  8. Active Trading Fundamentals

    Five Biggest Obstacles Facing First-Year Traders

    Address these five obstacles and you'll make significant progress as a first-year trader.
  9. Options & Futures

    How To Hedge Put Options Using Binary Options

    Want to hedge your plain vanilla long put option position with binary call options? We show you how.
  10. Options & Futures

    How To Hedge Stock Positions Using Binary Options

    Here’s a step-by-step method to hedge your long (and short) positions in stocks, using binary options.

You May Also Like

Hot Definitions
  1. Dog And Pony Show

    A colloquial term that generally refers to a presentation or seminar to market new products or services to potential buyers.
  2. Topless Meeting

    A meeting in which participants are not allowed to use laptops. A topless meeting organizer can also ban the use of smartphones, ...
  3. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  4. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  5. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  6. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!