Head and Shoulders / Triple Top Formation
Reference values based on Bulkowski's "Encyclopedia of Chart Patterns". Data is primarily from U.S. markets and may differ for other markets.
A classic reversal pattern appearing at the top of an uptrend, composed of three peaks: the left shoulder, head, and right shoulder. The head is the highest, with the shoulders at approximately equal heights. The pattern is completed when the neckline is broken to the downside, signaling a trend reversal. Known in traditional Japanese technical analysis as 'Sanzon' (three peaks).
Enter short when price clearly breaks below the neckline on a closing basis. For greater certainty, wait for a retest (pullback) to the neckline.
Project the vertical distance from the head's high to the neckline downward from the neckline breakout point. For example: head at 1150, neckline at 975, range of 175, target at 800.
Place a stop-loss slightly above the right shoulder's high (1-3% above). After a neckline retest entry, it can be placed slightly above the neckline.
Ideally, the left shoulder has the highest volume, decreasing at the head, and further decreasing at the right shoulder. A volume surge at the neckline breakdown enhances reliability.