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Theย head and shoulders chart patternย is a reversal pattern and most often seen inย uptrends.

Not only is โhead and shouldersโ known for trend reversals, but itโs also known for dandruff reversals as well.ย ๐

In this lesson, weโll stick to talking about trend reversals and leave the topic of dandruff for another time.

A head and shoulders pattern is also a trend reversal formation.

It is formed by aย peakย (shoulder), followed by aย higher peakย (head), and then anotherย lower peakย (shoulder).

A โnecklineโ is drawn by connecting the lowest points of the two troughs.

The slope of this line can either be up or down. Typically, when the slope is down, it produces a more reliable signal.

In this example, we can easily see the head and shoulders pattern.

The head is the second peak and is the highest point in the pattern. The two shoulders also form peaks but do not exceed the height of the head.

With this formation, we put an entry order below the neckline.

We can also calculate a target by measuring the high point of the head to the neckline.

This distance is approximately how far the price will move after it breaks the neckline.

You can see that once the price goes below the neckline it makes a move that is at least the size of the distance between the head and the neckline.

We know youโre thinking to yourself, โthe price kept moving even after it reached the target.โ

And our response is, โDONโT BE GREEDY!โ

The name speaks for itself. It is basically a head and shoulders formation, except this time itโsย upside down.ย ๐

Aย valleyย is formed (shoulder), followed by an evenย lower valleyย (head), and then anotherย higher valleyย (shoulder).

These formations occur after extended downward movements.

Here you can see that this is just like a head and shoulders pattern, but itโs flipped upside down.

With this formation, we would place a long entry order above the neckline. Our target is calculated just like the head and shoulders pattern.

Measure theย distance between the head and the neckline, and that is approximately the distance that the price will move after it breaks the neckline.

You can see that the price moved up nicely after it broke the neckline.