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Head and Shoulder Formation

One of the best known chart formations to predict whether a change in the direction of the price will taken place. The first phase is the development of the left shoulder, which typically takes place after a long sustained bull market and initially appears to be a continuation of the upward trend. Eventually the left shoulder rally comes to an end, a price correction follows and then the head and right shoulder begin to develop. A trend line, known as the neck line, is drawn connecting the left shoulder reaction low and head reaction low (usually upward sloping). Until prices drop below this line the formation can not be confirmed.