Head and Shoulders
Head and Shoulders is a bearish reversal pattern with three peaks: a left shoulder, a higher head, and a right shoulder at roughly the same height as the left, connected by a neckline formed from the two intervening lows.
What it measures
The pattern requires an existing uptrend, three peaks with the middle one highest, and a neckline (often slightly upward or horizontal). Confirmation is a close below the neckline; the projected target is the height from the head to the neckline, projected downward from the break.
Parameters
| Name | Default | Range | Note |
|---|---|---|---|
| shoulder_tolerance_pct | 3 | 1–8 | How close the two shoulders must be in height. |
| head_min_prominence_pct | 3 | 1–10 | Minimum head height above the shoulders. |
How it behaves
Volume typically declines from left shoulder to head to right shoulder — the classical "distribution signature". The neckline break, especially with a volume expansion, is the primary trigger. Retests of the broken neckline from below are common and high-quality short entries.
When it misleads
The pattern fails frequently in strong trends — apparent H&S structures resolve as pauses and the trend continues. Filters that help: require prior uptrend of meaningful duration (not just a few candles), require the head to be significantly above the shoulders (not marginally), and only trade after neckline confirmation, never on the incomplete right shoulder.
Backtest result
Sourced backtest in preparation — we're running the rule on our own historical candles before publishing numbers we can stand behind.
FAQ
- How reliable is Head and Shoulders?
- Among the most cited reversal patterns; in academic studies its post-neckline-break edge is modest but positive. Selection bias inflates its reputation — pundits show the ones that worked and forget the failures.
- What is an Inverse Head and Shoulders?
- The mirror pattern at a bottom: two shoulders and a lower head, with a resistance neckline. Bullish reversal, same mechanics.
- Can the neckline be sloped?
- Yes — mildly upward or downward is normal. Steeply sloped necklines produce weaker signals and less reliable targets.
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