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Technical Analysis: Power Tools for Active Investors by Gerald Appel

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Head and Shoulder Formations

Chart 4.3 illustrates the head and shoulder formation, a formation that has a bearish and a bullish variant, for indicating significant market top and market bottom junctures, respectively. These are the conditions that define the head and shoulder formation.

Chart 4.3. Head and Shoulder Formations for Buying and Selling

The head and shoulder formation is probably the best known of chart patterns, frequently significant in both its bullish and bearish configurations, although it is by no means 100% accurate in its predictions.

At market tops, the following occurs:

  1. The stock market rises to a ...

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