The head and shoulders pattern is a bearish reversal chart pattern that forms at the end of an uptrend. It has three peaks: a higher middle peak (the head) between two lower peaks (the shoulders). When price closes below the neckline that connects the two lows, the pattern gives a sell signal, and the expected target equals the distance from the top of the head to the neckline.
Key takeaways
- The regular head and shoulders is bearish; the inverse version is bullish.
- Enter only after a candle closes beyond the neckline, not before.
- Place the stop loss above the right shoulder and target the height of the head.
- Rising volume on the break strengthens the signal; a close back above the neckline cancels it.
Table of contents
What is the head and shoulders pattern?
The head and shoulders is one of the best-known reversal patterns in technical analysis, used in forex, gold, stocks, and crypto. It appears after a clear uptrend and shows that buyers are losing strength: price makes a new high (the head), then fails to reach that high again (the right shoulder). That failure is the first warning that the trend may turn down.
The pattern is popular because it gives you three things at once: a clear entry point at the neckline break, a logical stop-loss level above the right shoulder, and a price target you can measure in advance.
What are the parts of a head and shoulders pattern?
The pattern has four parts, and it is only complete when all of them appear in order:
| Part | How it forms | What it means |
|---|---|---|
| Left shoulder | A peak inside the uptrend, followed by a pullback. | The uptrend is still intact. |
| Head | A higher peak, followed by a drop back near the previous low. | The buyers’ last strong push. |
| Right shoulder | A lower peak, often close to the level of the left shoulder. | Buyers failed to make a new high; momentum is fading. |
| Neckline | A line connecting the two lows on either side of the head; it can be flat or sloped. | The key support level; breaking it confirms the pattern. |
How do you trade the head and shoulders pattern?
- Confirm the prior uptrendThis is a reversal pattern. Without a clear uptrend before it, there is nothing to reverse.
- Draw the necklineConnect the two lows on either side of the head and extend the line to the right to see where price could break it.
- Wait for a candle to close below the necklineThe safer entry comes after the candle closes, not when price merely touches the line. Some traders wait for price to retest the neckline from below and enter there.
- Place the stop loss above the right shoulderIf price climbs back above the right shoulder, the pattern has failed. If you enter on a retest, a tighter stop just above the neckline is also an option.
- Calculate the targetMeasure from the top of the head to the neckline and subtract that distance from the breakout point. Many traders take partial profit halfway and move the stop to breakeven.
Worked example: head and shoulders on EUR/USD
The calculation: The head tops out at 1.1000 and the neckline sits at 1.0850, so the height is 150 pips. Subtracting 150 pips from the neckline gives a target of 1.0700.
Entry and stop: After a 4-hour candle closes at 1.0840, below the neckline, you sell, with the stop loss above the right shoulder at 1.0945. That is 105 pips of risk for 140 pips of potential reward, a risk-to-reward ratio of about 1:1.3.
What is the inverse head and shoulders pattern?
The inverse head and shoulders is the mirror image of the regular pattern. It forms at the end of a downtrend and signals a bullish reversal. It has three lows: a deeper middle low (the head) between two higher lows (the shoulders). You buy after price closes above the neckline, place the stop loss below the right shoulder, and target the depth of the head measured upward from the neckline.
What is the difference between head and shoulders and inverse head and shoulders?
| Head and shoulders | Inverse head and shoulders | |
|---|---|---|
| Appears after | An uptrend | A downtrend |
| Signal | Sell (bearish reversal) | Buy (bullish reversal) |
| Shape | Three peaks, the middle one highest | Three lows, the middle one deepest |
| Entry | Close below the neckline | Close above the neckline |
| Stop loss | Above the right shoulder | Below the right shoulder |
| Target | Head height subtracted from the neckline | Head depth added to the neckline |
How does volume confirm the pattern?
Volume helps you separate real patterns from false ones. In a textbook pattern, volume on the right shoulder is lower than on the head, which means fewer buyers are willing to push price higher. Volume then rises clearly when price breaks the neckline, confirming that sellers have taken control.
What are the most common head and shoulders mistakes?
- Entering before the neckline breaksThe pattern isn’t complete until the break. Selling the right shoulder early exposes you to the uptrend continuing.
- Ignoring the prior trendA head and shoulders in a sideways market is not a real reversal pattern. It needs a clear uptrend before it.
- Seeing the pattern everywhereNot every three peaks are a head and shoulders. If the head isn’t clearly the highest, or the shoulders are badly out of proportion, skip it.
- Ignoring volume and breakout strengthA weak, low-volume break often fails, and price returns above the neckline.
- Trading right before major newsReleases such as US inflation data or central bank decisions can cancel any chart pattern within minutes. Check the economic calendar first.
- Trading without a stop lossEven the clearest patterns fail. A stop above the right shoulder defines your loss before you enter.
Head and shoulders pattern FAQ
What is the head and shoulders pattern?
The head and shoulders is a bearish reversal pattern in technical analysis that forms after an uptrend. It has three peaks, with the middle one (the head) the highest. A break below the neckline that connects the two lows gives a sell signal.
Is head and shoulders bullish or bearish?
The regular head and shoulders is bearish and appears at the end of an uptrend. The inverse head and shoulders is bullish and appears at the end of a downtrend.
Where do I put the stop loss on a head and shoulders pattern?
Place the stop loss above the top of the right shoulder for a regular pattern, or below the bottom of the right shoulder for an inverse pattern. If you enter on a retest of the neckline, you can use a tighter stop just beyond the neckline.
How do you calculate the head and shoulders target?
Measure the distance from the top of the head to the neckline, then subtract it from the breakout point for a regular pattern, or add it to the breakout point for an inverse pattern.
What is the difference between head and shoulders and a triple top?
In a triple top, the three peaks are at roughly the same level. In a head and shoulders, the middle peak is clearly higher than the two shoulders.
Which timeframe is best for the head and shoulders pattern?
The pattern appears on every timeframe, but it is more reliable on the 4-hour and daily charts because there is less random price noise than on small timeframes.
What happens if price closes back above the neckline?
If price closes back above the neckline, and especially if it rises above the right shoulder, the pattern has failed, and price often continues higher with strength.
Follow our daily analysis to spot patterns like this on major forex pairs and gold, or learn them step by step in our trading course.
Further reading: Head and Shoulders Pattern — Investopedia
Risk warning: This article is for educational purposes only and is not investment advice. Trading forex, gold, and other leveraged products carries a high risk of losing your capital.