The\u00a0Head and Shoulders<\/strong> formation is one of the most well known reversal patterns.<\/p>\n On the\u00a0technical analysis\u00a0chart, when a\u00a0price trend\u00a0is in the process of reversal either from a\u00a0bullish or bearish\u00a0trend, a characteristic pattern takes shape and is recognized as reversal formation that will indicate what you should do\u00a0while trading stocks,\u00a0trading\u00a0forex or\u00a0trading\u00a0commodities.<\/p>\n Head and Shoulders Top and Head and Shoulders Bottom is discussed below.<\/p>\n <\/p>\n Head and Shoulders formation consists of a left shoulder, a head, and a right shoulder and a line drawn as the neckline. The left shoulder is formed at the end of an extensive move during which volume is noticeably high. After the peak of the left shoulder is formed, there is a subsequent reaction and prices slide down to a certain extent which generally occurs on low volume. The prices rally up to form the head with normal or heavy volume and subsequent reaction downward is accompanied with lesser volume. The right shoulder is formed when prices move up again but remain below the central peak called the Head and fall down nearly equal to the first valley between the left shoulder and the head or at least below the peak of the left shoulder. Volume is lesser in the right shoulder formation compared to the left shoulder and the head formation. A neckline is drawn across the bottoms of the left shoulder, the head and the right shoulder. When prices break through this neckline and keep on falling after forming the right shoulder, it is the ultimate confirmation of the completion of the Head and Shoulders Top formation. It is quite possible that prices pull back to touch the neckline before continuing their declining trend.<\/p>\n <\/p>\n <\/p>\n <\/p>\n Another difference between the Head and Shoulders Top and Bottom is that the Top Formations are completed in a few weeks, whereas a Major Bottom (Left, right shoulder or the head) usually takes a longer, and as observed, may prolong for a period of several months or sometimes more than a year.<\/p>\n The drawn neckline of the pattern represents a support level, and assumption cannot be taken that the Head and Shoulder formation is completed unless it is broken and such breakthrough may happen to be on more volume or may not be. The breakthrough should not be observed carelessly. A serious situation can occur if such a break is more than three to four percent.<\/p>\n <\/p>\n When a stock drifts through the neckline on small volume, there may be a\u00a0wave up<\/em>, although it is not certain, but it is observed, the rally normally does not cross the general level of the Neckline and before selling pressure increases, the steep decline occurs and prices tumble with greater volume.<\/p>\n Head and Shoulders is an extremely useful tool of\u00a0trading stocks,\u00a0trading\u00a0forex and\u00a0trading\u00a0commodities, after its confirmation to estimate and measure the minimum probable extent of the subsequent move from the neckline. To find the distance of subsequent move, measure the vertical distance from the peak of the head to the neckline. Then measure this same distance down from the neckline beginning at the point where prices penetrate the neckline after the completion of the right shoulder. This gives the minimum objective of how far prices can decline after the completion of this top formation.<\/p>\n If the price advance preceding the Head and Shoulders top is not long, the subsequent price fall after its completion may be small as well.<\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" Head and Shoulders – Great trading stocks tool! The\u00a0Head and Shoulders formation is one of the most well known reversal patterns. On the\u00a0technical analysis\u00a0chart, when a\u00a0price trend\u00a0is in the process of reversal either from a\u00a0bullish or bearish\u00a0trend, a characteristic pattern takes shape and is recognized as reversal formation that will indicate what you should do\u00a0while […]<\/p>\n","protected":false},"author":1,"featured_media":0,"parent":112,"menu_order":1,"comment_status":"closed","ping_status":"closed","template":"","meta":{"_mi_skip_tracking":false},"yoast_head":"\nFormations<\/span><\/h2>\n
Head and shoulders top<\/h3>\n
![\"Head](\"http:\/\/stockmarket.what-todo.com\/stockmarket\/wp-content\/uploads\/2012\/01\/pattern_hdsh1.jpg\" "\\"Trade")
<\/a><\/p>\nHead and shoulders bottom<\/h3>\n
<\/a>This formation is simply the inverse of a Head and Shoulders Top and often indicates a change in the trend and the sentiment. The formation is upside down in which volume pattern is different than a Head and Shoulder Top. Prices move up from first low with increase volume up to a level to complete the left shoulder formation and then falls down to a new low. It follows by a recovery move that is marked by somewhat more volume than seen before to complete the head formation. A corrective reaction on low volume occurs to start formation of the right shoulder and then a sharp move up that must be on quite heavy volume breaks though the neckline.<\/p>\nImportance of neckline<\/span><\/h2>\n
Characteristics and trading stocks projections<\/span><\/h2>\n
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Usage as a trading tool<\/span><\/h2>\n
continue to next lesson and find out about Double top<\/a><\/h2>\n
Or, Jump straight to the trading\u00a0stock\u00a0Indicators Lessons<\/a><\/h2>\n