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Head and Shoulders Chart PatternThe Head and Shoulders chart pattern is a very good pattern to trade. This is a reversal pattern, meaning that it signifies a change in trend. The stock has been in an upward trend for some time and is now taking a turn in the other direction. Look at the chart below.
You can easily see the two shoulders and the head in this pattern. Usually volume will be lower for the head and the right shoulder than it was for the left shoulder. In this chart you can see that volume has dropped on the right shoulder and peaked when the price broke down through the neckline. This helps to confirm our analysis. Many traders will make their move when the stock breaks through the neckline, and that ok, but I prefer to wait and see if the stock will come back up and test resistance as it so often does. Notice in our example that the stock broke through the neckline and then came back up to test resistance. This doesn't always happen and you will miss out on some trades, but I like to wait to see if it will. You can always jump in after a minor rally. Technical Analysis Trading Chart patterns should be a big part of your online stock and option education. Head & Shoulders Top formation should be part of your Stock and option trading arsenal. Practice on paper before you start trading in the market so that you can correct any mistakes in identifying chart patterns.
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