This is another pattern signalling a trend reversal. It’s very similar to the triple top, but this time you get a peak (shoulder), followed by a higher peak (the head), followed by a lower peak (another shoulder). It looks a bit like this:
The neckline is formed between the two troughs on either side of the head. If the neckline’s sloping down that’s an even better indication of a reversal. You can calculate your target level based on the distance between the head and the neckline: just add that distance on to the breakout point.
It’s worth noting that a head and shoulders pattern is only described as complete once the neckline is broken. At that point the target comes into play.
Inverse head and shoulder patterns work in the same way but in the other direction.
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