Trading
Three peaks with a taller middle one, signaling that buyers ran out of strength.
What you are looking at
Price makes a high, pulls back, makes a higher high, pulls back to about the same level, then makes a lower high. That line under the pullbacks is the neckline.
How traders act on it
Traders watch for a close below the neckline. The rough target is the distance from head to neckline, projected down from the break.
When it fails
If price breaks the neckline and immediately reclaims it, the pattern has failed and shorts are trapped.
Failure is normal and it is not a problem, provided you decided your invalidation level before entering and sized the position so that being wrong is survivable. See risk management.
Context that changes the odds
| Factor | Improves the setup | Weakens it |
|---|---|---|
| Higher timeframe trend | Pattern agrees with the daily or weekly direction | Pattern fights the larger trend |
| Volume | Expands on the breakout | Breakout happens on thin volume |
| Duration | Formed over many candles | Formed over three or four candles, which is mostly noise |
| Level confluence | Trigger sits at a well tested level | Trigger sits in empty space with no history |
| Market conditions | Trending, orderly market | Choppy range, where nearly every pattern fails |
Other patterns
Common questions
How do I know it is a head and shoulders and not just noise?
What is the target after the neckline breaks?
Where to go next
Practice spotting these
We go through live charts together and separate the real setups from the shapes your brain wants to see. That second skill is the harder one.