Head and Shoulders Trading Pattern
Definition:
Also referred to as a lower swing high trend reversal, a Head and Shoulders pattern is formed when price action within an uptrend traces a lower swing high than the previous one.
Background:
The Head and Shoulders pattern is probable because the sentiment that was formerly producing the uptrend is now possibly shifting and buying pressure is decreasing.
Head and Shoulders patterns can be stronger when the price breaks below the "neckline", which is a trendline connecting the swing/pivot lows that created the shoulders.
Practical Use:
Traders will often seek out opportunities to sell short when confirmation in the form of a "neck-line break" occurs. A neck-line break for a Head and Shoulders pattern is the failure of a support area drawn from the two previous swing lows on the chart.
