A Quick Guide on How To Spot Head and Shoulders.

Head and Shoulders are reversal signs and have different types such as simple, complex, reversed and etc.
So there need to be a bull-run for 10-30% before the peak of left shoulder. (or a bearish drop before a reverse H&S)
The most important factor is seeing higher selling volume and smaller buying volumes specially on the top.
The head has to be taller than the shoulders and the distance between the neckline to top of the head would be equal to the distance the price would drop after forming H&S.
See the volume line. Left shoulder should have a higher volume compared to the right shoulder and also the head.
At the end, this pattern is not completed unless the neckline is broken down with huge volumes. We have not seen that yet, but it'd be interesting to watch.

Note

Note: Since the neckline did not breakdown, this cannot be considered as a head and shoulders.

Note

Note: In case the price come back down on 7/6 and break the neckline with high volumes, it would be a complex H&S. But if the price keeps climbing then you have learned about all the features of the H&S pattern except for it's complete formation which is the break down of the neckline. +

Note

Watch this closely. Stock is testing the neckline again but the volume is not that high. That brings up an important point about volume

Learning point:

When a stock is going up the volume is more important than when it's falling. Here it means if the neckline break down with average to low volume, this pattern would still be valid. But if this was a reverse head and shoulder, at the end of a bearish trend, then the volume had to be high for the pattern to be valid.

Close below 2160 or lower for two consecutive days would confirm a break down of the neckline.

Learning point:
When analysts talk about confirmation, they are referring to the rule of 3% or 2 days. That means we have confirmation if the trend breaks down 3% or more OR stays under the trendline for 2 consecutive days.

Trade active

With a little bit of turn, now this pattern is complete. Please review the learning points above and on this chart to make sure you have a solid understanding of H&S patterns.

Order cancelled

MarkitMaven

Market Maven: Never Miss a Move.

Disclaimer: This is not a financial advice and all posts are for educational purposes only.

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MarkitMaven

Market Maven: Never Miss a Move.

Disclaimer: This is not a financial advice and all posts are for educational purposes only.

Also on: