Chart Patterns | Head and Shoulders

Global Market Astro explains the common chart patterns observed in the market charts and the cause & effects of the various chart patterns.

DEFINING CHART PATTERNS

A chart pattern is a distinctive formation on a stock chart that indicates a trading signal, or future price movements of the stock. Chartists use the chart patterns to recognise current market trends and trend reversals and to identify buy and sell signals.
There are two types of chart patterns within this area of technical analysis. The reversal and continuation. A reversal pattern indicates that a prior trend will reverse once the pattern gets completed. A continuation pattern indicates that a trend will continue upon completion of the pattern. These chart patterns can be commonly found in charts of any timeframe.

HEAD AND SHOULDERS

“Head and Shoulders” is the most common and reliable chart pattern. It is a reversal chart pattern when formed indicates that the stock is about to move against the previous trend. The Head and shoulders pattern comprises of four main components- two shoulders, one head and one neckline. Each head and shoulder comprises of a high and a low.

There are two types of Head and Shoulders chart patterns,

Top Head and Shoulders in first image formed at the high of an uptrend indicate the end of the upward trend.

The bottom Head and Shoulders or Inverse Head and Shoulders signals a reversal in a downward trend.