What is head and shoulder pattern?

 The head and shoulders pattern is a technical analysis tool used in stock and forex trading to identify potential trend reversals, specifically a bullish trend turning bearish. Here's a breakdown of its characteristics:

• Shape: It resembles a human head with two shoulders on either side.
• Three Peaks: The pattern consists of three peaks on a price chart. The middle peak, the "head," is the highest, while the two outer peaks, the "shoulders," are roughly equal in height and lower than the head.
• Neckline: A horizontal line is drawn connecting the swing lows (valleys) before and after the head. This line is called the neckline and acts as a support level.

How to Interpret the Pattern:

• Breakthrough: If the price falls below the neckline consistently, it's considered a break of support and a sign of a potential trend reversal from bullish to bearish.
• Target Price: The measured distance between the head and the neckline is estimated to be the same distance the price might fall after breaking the neckline. This helps traders set potential price targets for selling their holdings.

Important Notes:

• Head and shoulders is a probability indicator, not a guarantee. There's always a chance the price might not break the neckline and the trend might continue upwards.
• Confirmation by trading volume is crucial. The volume should be highest during the formation of the left shoulder and then decrease throughout the pattern, especially on the breakout below the neckline.

While head and shoulders is a popular pattern, it's important to use it in conjunction with other technical indicators for a more comprehensive trading strategy.