Elearnmarkets - Financial Market Learning
  • Courses
  • Webinars
  • Stories
  • Language
    • English
    • Hindi
    • Bengali
No Result
View All Result
Get Free Course
  • Basic Finance
  • Derivatives
    • Futures
    • Options
  • Financial Planning
  • Fundamental Analysis
  • Technical Analysis
  • Mutual Funds
  • Marketshala
  • Miscellaneous
Elearnmarkets - Learn Stock Market, trading, investing for Free
  • Courses
  • Webinars
  • Stories
  • Language
    • English
    • Hindi
    • Bengali
No Result
View All Result
Get Free Course
Elearnmarkets - Learn Stock Market, trading, investing for Free
No Result
View All Result
Home Technical Analysis
Understanding the Head and Shoulders Pattern 1

Understanding the Head and Shoulders Pattern

Elearnmarkets by Elearnmarkets
May 27, 2024
in Technical Analysis, Charts, Patterns & Indicators
Reading Time: 7 mins read
5
13.7k
VIEWS
Share on FacebookShare on XShare on WhatsApp

The Head and Shoulders pattern is quite popular amongst the market participants due to its reliability in the past and, of course, the success ratio. Traders often study trends and patterns when analyzing the market in hopes of detecting the next most probable price movement.

Spotting and correctly identifying patterns and understanding their significance are vital to successful trading.

Let’s understand the pattern in detail.

Head and Shoulders pattern, as the name suggests the shape of a head along with two shoulders. This is a reversal pattern and can act both as a bullish and bearish reversal pattern depending upon the prior trend and type of this pattern.

In today’s blog, let us discuss how to trade with head and shoulders pattern and also inverted head and shoulders pattern:

Table Of Contents
  1. What is the Head and Shoulders Pattern?
  2. What does an inverted head and shoulders pattern mean?
  3. How to Interpret the Head and Shoulders Pattern?
    • Example of Head and Shoulders pattern chart:
    • Example of Inverse Head and Shoulders pattern:
  4. How to filter Stocks using a Head and Shoulders Screener?
  5. Bottomline
  6. Frequently Asked Questions (FAQs)
    • Is a head and shoulder bearish or bullish?
    • What is the rule of head and shoulder pattern?
    • What is the success rate of the head and shoulders pattern?

What is the Head and Shoulders Pattern?

This pattern gives a market reversal signal post breakdown from the neckline which is accompanied by heavy volume. The neckline is basically the horizontal line which joins both the troughs to each other.

The possibility of breakdown increases, if the slope of the neckline is flat to downward sloping and the right shoulder, is relatively smaller or equal to the left shoulder.

Another important aspect to remember is that post breakdown from this chart pattern, there may be a possibility of retesting to the neckline. The further breakdown is also accompanied by heavy volume which gives confirmation of the weakness.

The pattern can be formed in any timeframe from a few minutes to a weekly and monthly chart. However, the higher the timeframe higher is the chance of success.

Before we continue, it’s important to keep in mind that this pattern is almost never perfect, meaning, there will likely be small price fluctuations between the shoulders and the head, and the pattern formation is rarely perfectly shaped in its appearance.

What does an inverted head and shoulders pattern mean?

Similarly in the case of an Inverted pattern which is exactly a mirror image of the original pattern but is formed after a prior downtrend and is usually a bullish reversal pattern.

Head and Shoulder Pattern & Inverse Head and Shoulder Pattern

How to Interpret the Head and Shoulders Pattern?

This pattern is one of the popular patterns amongst the trader community due to its pre-determined price target estimate after the breakdown from the neckline.

The minimum target is the vertical distance from the head to the neckline post breakdown.

Usually, one can place stop loss at the high of the right shoulder and trail the same as the price corrects. With an inverse pattern, stops are usually placed at the low of the right shoulder.

Example of Head and Shoulders pattern chart:

Head and Shoulders pattern example Escorts Ltd

This is an example of this pattern formed in the daily chart of Escorts where post breakdown from the neckline, the stock witnessed a sharp selloff and achieved the pattern target (shown by the blue line) in a mere single candle.

Moreover, the breakdown was also supported by high volume which further confirmed the weakness.

Example of Inverse Head and Shoulders pattern:

Inverse Head and Shoulder Pattern example Bandhan Bank

The above image is an example of an Inverted pattern which was formed in the hourly chart of Bandhan Bank Ltd. The stock witnessed sharp movement post-breakout from the pattern on a very high volume.

One important thing to note here is that the stock made a retest to the neckline here.

You can also read more on Chart Patterns from our ELM School

How to filter Stocks using a Head and Shoulders Screener?

There are so many stocks in which this chart pattern is formed and it is difficult for traders to look at the charts of more than 500 stocks for finding this pattern.

So, with the help of StockEdge, one can filter out stocks in which the head and shoulders pattern is formed:

Understanding the Head and Shoulders Pattern 2

After clicking on the bullish or bearish head and shoulder, you will get a list of stocks in which this pattern is formed:

Understanding the Head and Shoulders Pattern 3

After clicking on any of the above stocks, you will get a technical chart showing the pattern as below:

Understanding the Head and Shoulders Pattern 4

Once you have identified this chart pattern in the stocks, you can trade accordingly, as discussed above.

Bottomline

To achieve your trading goal, it’s important to incorporate discipline and adopt proper risk management. This is the reason for the popularity of the Head & Shoulders pattern due to its risk-reward objective.

However, no pattern is 100% accurate but this pattern signals a change in trend and creates a profit opportunity with a defined risk-reward.

You may take further confirmation of the possibility of a breakout by tracking the volume; the slope of the neckline and with the help of technical parameters.

Furthermore, understanding candlestick patterns can unlock valuable insights into market sentiment and potential price movements, offering traders a powerful tool for informed decision-making.

Frequently Asked Questions (FAQs)

Is a head and shoulder bearish or bullish?

A head and shoulders pattern, which is a bearish reversal pattern, indicates that the uptrend has peaked and that the reversal has begun when the succession of higher highs—the first and second peaks—is broken by the third peak, which is lower than the second.

What is the rule of head and shoulder pattern?

The head is formed when enthusiasm reaches its height and then begins to fall to a level at or very close to the stock’s prior low. The formation of the right shoulder coincides with the stock price’s subsequent rally, which falls short of its previous peak.

What is the success rate of the head and shoulders pattern?

An example of a predicted chart formation is this pattern. This pattern has long been acknowledged as a reliable pattern that can spot trend reversals.

Tags: basicenglishhead and shoulders patterntechnical analysis
ShareTweetSend
Get Kotak Offer Get Kotak Offer Get Kotak Offer
Previous Post

How to Use Rising and Falling Window Candlestick Pattern

Next Post

Understanding Mat-Hold Candlestick Pattern

Elearnmarkets

Elearnmarkets

Elearnmarkets (ELM) is a complete financial market portal where the market experts have taken the onus to spread financial education. ELM constantly experiments with new education methodologies and technologies to make financial education effective, affordable and accessible to all. You can connect with us on Twitter @elearnmarkets.

Related Posts

Understand Slippage in Trading
Technical Analysis

What is Slippage in Trading? Meaning & Examples

March 28, 2025
372
Breakout trading strategies
Technical Analysis

Top 5 Breakout Trading Strategies

March 12, 2025
1.3k
5 stocks for today
Technical Analysis

5 Stocks to Buy Today That Could Beat the NIFTY in 2025!

May 5, 2025
457
Image describing What is marginal trading facility
Technical Analysis

 What is a Margin Trading Facility? Advantages & Risks

April 4, 2025
865

Comments 5

  1. sampat sangle says:
    6 years ago

    useful….good

    Reply
    • Sakshi Agarwal says:
      6 years ago

      Hi Sampat,

      Thank you for Reading!

      Keep Reading!

      Reply
  2. pritam phulari says:
    5 years ago

    thank you sir for informiton

    Reply
  3. DR SURESH says:
    5 years ago

    one of the most popular and reliable chart pattern neatly explained.that itself can be a trading strategy provided we stick to its basic rules and apply in our daily analysis.our eyes should be trained to catch those and never miss them because of their success rate.
    Thank you.

    Reply
  4. share market tips says:
    5 years ago

    Excellent article. Wonderful set of information. Thanks for the post.

    Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Disclaimer

Elearnmarkets (Kredent InfoEdge Pvt. Ltd.) is a SEBI-registered Research Analyst (RA) entity (SEBI Registration No.: INH300007493). The information provided in this article is for educational and informational purposes only and should not be considered as an offer to buy or sell any securities or investment products.

The stocks, securities, and investment instruments mentioned herein are not recommendations under SEBI (Research Analysts) Regulations, 2014. Readers are advised to conduct their own due diligence and seek independent financial advice before making any investment decisions.

Investments in securities markets are subject to market risks. Please read all related documents carefully before investing. Investing in Equity Shares,
Derivatives, Mutual Funds, or other instruments carry inherent risks, including potential loss of capital. Elearnmarkets (Kredent InfoEdge Pvt. Ltd.) does not provide any guarantee or assurance of returns on any investments. Past performance is not indicative of future performance.

Elearnmarkets Logo

Follow Us

Facebook-f X-twitter Instagram Linkedin-in Youtube Telegram

Register on Elearnmarkets

Continue your financial learning by creating your own account on Elearnmarkets.com

Register Free Account

Download App

Playstore logo
Download on app store

Categories

  • Basic Finance
  • Derivatives
  • Financial Planning
  • Fundamental Analysis
  • Technical Analysis
  • Mutual Funds
  • Miscellaneous

Popular On Elearnmarkets

  • Market Superheroes:
  • Vivek Bajaj
  • Chetan Panchamia
  • Ashish Kyal
  • Premal Parekh
  • Abhijit Paul
  • Jegan
  • Sivakumar Jayachadran
  • Jyoti Budhia
  • Vivek Gadodia
  • Vishal Mehta
  • Piyush Chaudhry
  • Santosh Pasi
  • Gomathi Shankar
  • Market Superheroes:
  • Vivek Bajaj
  • Chetan Panchamia
  • Ashish Kyal
  • Premal Parekh
  • Abhijit Paul
  • Jegan
  • Sivakumar Jayachadran
  • Jyoti Budhia
  • Vivek Gadodia
  • Vishal Mehta
  • Piyush Chaudhry
  • Santosh Pasi
  • Gomathi Shankar
  • Courses:​
  • Options Trading
  • Dow Theory
  • Momentum Trading
  • Stock Investing
  • Harmonic Chart Patterns
  • Algo Trading
  • Elliot Wave Theory
  • Advanced Excel
  • Cryptocurrency
  • NSE Certification Course
  • Courses:​
  • Options Trading
  • Dow Theory
  • Momentum Trading
  • Stock Investing
  • Harmonic Chart Patterns
  • Algo Trading
  • Elliot Wave Theory
  • Advanced Excel
  • Cryptocurrency
  • NSE Certification Course
  • Webinars:
  • Bank Nifty Scalping
  • Intraday Trading Strategies
  • Options Trading Strategies
  • Options selling
  • Price Action
  • Relative Strength
  • Tax Planning
  • Options Buying
  • Growth Stocks
  • Portfolio Management
  • Risk Management
  • Renko Charts
  • Crude Oil
  • Traders Psychology
  • Moving Average
  • Multibagger Stocks
  • Webinars:
  • Bank Nifty Scalping
  • Intraday Trading Strategies
  • Options Trading Strategies
  • Options selling
  • Price Action
  • Relative Strength
  • Tax Planning
  • Options Buying
  • Growth Stocks
  • Portfolio Management
  • Risk Management
  • Renko Charts
  • Crude Oil
  • Traders Psychology
  • Moving Average
  • Multibagger Stocks
  • Free Learning Modules:
  • Intraday Trading
  • Options Scalping
  • Swing Trading
  • Financial Modelling
  • RSI Indicator
  • Bollinger Bands
  • Pricing of Futures
  • Personal Finance
  • Initial Public Offerings (IPO)
  • Value Investing
  • Technical Indicators
  • Candlesticks
  • Chart Patterns
  • Option Greeks
  • ELSS Funds
  • Banking and Insurance
  • Real Estate
  • Gold
  • Free Learning Modules:
  • Intraday Trading
  • Options Scalping
  • Swing Trading
  • Financial Modelling
  • RSI Indicator
  • Bollinger Bands
  • Pricing of Futures
  • Personal Finance
  • Initial Public Offerings (IPO)
  • Value Investing
  • Technical Indicators
  • Candlesticks
  • Chart Patterns
  • Option Greeks
  • ELSS Funds
  • Banking and Insurance
  • Real Estate
  • Gold
  • Book Summaries:
  • Rich Dad Poor Dad
  • Psychology of Money
  • The Intelligent Investor
  • The Richest Man in Babylon
  • Think and Trade Like a Champion
  • Value Investing and Behavioural Finance
  • Trading in the Zone
  • Learn to Earn
  • Book Summaries:
  • Rich Dad Poor Dad
  • Psychology of Money
  • The Intelligent Investor
  • The Richest Man in Babylon
  • Think and Trade Like a Champion
  • Value Investing and Behavioural Finance
  • Trading in the Zone
  • Learn to Earn
  • Tools:
  • CAGR Calculator
  • SIP Calculator
  • eLearnOptions
  • Future Value Calculator
  • Present Value Calculator
  • Atal Pension Yojana
  • Cost of Delay Calculator
  • Become a Crorepati
  • Tools:
  • CAGR Calculator
  • SIP Calculator
  • eLearnOptions
  • Future Value Calculator
  • Present Value Calculator
  • Atal Pension Yojana
  • Cost of Delay Calculator
  • Become a Crorepati

© 2025 Elearnmarkets. All Rights Reserved

  • Visit Elearnmarkets
  • Courses
  • Webinars
  • Financial Guides
  • Get Free Counselling
  • Visit Elearnmarkets
  • Courses
  • Webinars
  • Financial Guides
  • Get Free Counselling

Download Our App

No Result
View All Result
  • Article Categories
    • Basic Finance
    • Derivatives
    • Financial Planning
    • Fundamental Analysis
    • Technical Analysis
    • ETFs & Mutual Funds
    • Marketshala
    • Miscellaneous
  • Language
    • Hindi
    • Bengali
    • English
  • Courses
  • Webinars
  • Stories
Get Free Course

© 2024 Elearnmarkets All Rights Reserved

A Handbook of Technical Analysis
To start your trading journey as a seasoned technical analyst
Download Guide For FREE
Guidebook On Chart Patterns
Take Your Trading To The Next Level With Strategies Shared In This Ebook
Download Guide For FREE
How to Spot False Dips and Trade with Confidence