Head and Shoulders

One of the most widely recognized reversal patterns is the “head and shoulders.” It is named for its resemblance to a head with two shoulders on either side. Aside from appearances, this pattern demonstrates several technical factors such as failing momentum, support/resistance breaks, and trend breaks.

In a rising market, prices make higher highs and higher lows as the trend continues up (see Figure 10.1). The left shoulder is simply part of this pattern. Prices rise to the top of the shoulder and fall in a normal retracement (correction).

Figure 10.1. Left shoulder

Next, prices rise to another new high (see Figure 10.2 ...

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