Head-and-Shoulders Definition. A Head-and-Shoulders is a bearish reversal pattern that is familiar to technical analysts -and forex traders. It consists of a series of three consecutive rallies, such that the first and third rallies, the “shoulders”, have approximately the same height and the middle one, the “head”, is the highest. The support line formed by a line connecting the bases of the two shoulders is known as the “neckline”. The neckline need not be exactly horizontal. In most cases, it may be up or down, but most forex traders believe the signal is more reliable if the slope is tilted downward, thereby confirming an impending fall in price. When the neckline is broken, the downward expectation price point is equivalent to the amplitude of the “head” from the “neckline”. A Head-and-Shoulders can also form in reverse, such that it is a bullish reversal pattern. The diagram shown below, taken from a popular forex tutorial on the Internet, illustrates the various characteristics of this easily recognizable chart pattern.
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