Chart Pattern

DEFINITION : Head and shoulders (chart pattern): The head and shoulders pattern is a commonly found pattern in the price charts of financially traded assets (stocks, bonds, futures, etc.). The pattern derives its name from the fact that its structure is visually similar to that of a head with two shoulders. It is one of the most reliable chart patterns, and it reaches its projected target in 95% probability.

Head and shoulders patterns have four elements: a left shoulder, which is essentially a relative peak; a head, which is a peak above both shoulders; a right shoulder, which is a peak that is approximately parallel to the left shoulder; and a neckline, which serves as a support, or bottom, of price activity within the range of the head and shoulders pattern. The chart below illustrates.

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