Visual Guide to Chart Patterns

Head-and-Shoulders Tops

Spotting tops is easier for me. Perhaps it is the idea that preservation of capital is more important than profit. Whatever the reason, let us look at the last chart pattern in this section of the book.

KEY POINT:

A head-and-shoulders top is a three-peak reversal pattern with a centrally located head priced above two adjacent (shoulder) peaks. The pattern confirms as a valid chart pattern when price closes below the neckline or right armpit.

The head-and-shoulders top appears on the chart just as it sounds and Exhibit 17.1 shows examples. In both chart patterns, a head towers above the shoulders, making it look like ...