The head-and-shoulders is perhaps the best-known chart pattern. It has an evocative name, but recognizing a valid one takes an understanding of the rules. Let us begin by looking at a few samples. (See Exhibit 16.1.)
In this exhibit, I show three head-and-shoulders patterns. Pattern A is a head-and-shoulders bottom. The right shoulder (RS) bottoms at a price above the left (LS), but not too far. If this were the bust of a real person, yes, they might be in need of medical attention.
A head-and-shoulders bottom is a three-valley chart pattern that resembles a person’s bust, inverted. The head is below ...