Head and Shoulder Pattern

The Head and shoulder is very important and will carve out the way for most of the other patterns.

From the above image, we can see that this pattern has three peaks. The first peak is known as left shoulder, second peak is known as head(highest of all) and third peak is known as right shoulder. Such a pattern can be easily seen but here volume plays a very significant role or we can say that significance of volume is greater than price.

volume at the left shoulder should be higher than the head and volume at the head should be higher than the right shoulder i.e. VOLUME(LEFT SHOULDER)>VOLUME(HEAD)>VOLUME(RIGHT SHOULDER). Such volume indicates that the market is not in a position to hold the bullish trend anymore. If things keep going like this, it is like yellow light for the trader but the trader should wait until the neckline is broken because at this point rally fails as each break should be above the previous peak to consist as a trend. If the neckline is not broken, it means that the market is in a sideways trend and will again gain its bullish nature.

so the pattern is not complete until and unless the neckline is not broken and the trader should only act after the pattern is formed. at the neckline, again volume plays a very major role, the line should be broken with huge volume as compared to the previous peaks as it indicates the selling pressure and start of the bearish trend.

So from the above discussion, we can conclude that only forming of shape is not important but volume is also necessary.

If the slope of the neckline is downward, it indicates market weakness, hence if the slope of the neckline is downward then the pattern is robust because it shows the bearish nature of the market.

Here price objective can be set for the downfall, it should be the difference between the price at head and the price at the neckline (PRICE at head- Price at neckline).