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What is a Head and Shoulder Pattern?
As shown in the image a Head and Shoulder pattern is a chart formation that appears as a baseline with three peaks, where the outside two are close in height and the middle is highest.
Formation of Head and Shoulder Pattern?
The two lows formed when the price failed to rise and fell back down were basically at the same level. The horizontal line is often referred to as the "neckline" When the price fails to fall back for the third time neckline will break. So "head and shoulders" was officially established.
Changes in volume with head and shoulders:
During the formation of "head and shoulders", the left shoulder has the largest volume, the Head has a slightly smaller volume, and the right shoulder has the smallest volume. The phenomenon of diminishing trading volume shows that when the stock price rises, the chasing force is getting weaker and weaker, and the price has the meaning of rising to the end.
Operation plan after the Head and shoulders appear:
When the head and shoulders formed, you can decisively follow up the short order. The formation of the head and shoulders indicates the beginning of a new round of decline in the market, and the minimum drop is the distance from the head to the neckline. The profit is very substantial. Therefore, studying the formation of the Head and Shoulders is also a necessary analysis process for band enthusiasts.
The case is just opposite for Inverse Head and Shoulder where the buy order can be placed.
