Head and shoulders

What it is

A head and shoulders is three peaks: a left shoulder, a higher 'head', and a lower right shoulder, with a 'neckline' joining the lows between them. The lower right shoulder shows buyers can't make a new high any more; a close below the neckline confirms the turn.

The inverse head and shoulders is the bullish version at the bottom of a downtrend.

How to spot it

• Three peaks with the middle one highest.
• Draw the neckline through the two lows between them.

How to use it

• Enter on the neckline break or its retest; stop above the right shoulder.
• Target the head-to-neckline height projected down from the break.

Common mistakes

• Forcing the pattern onto random peaks.
• Entering at the right shoulder before the neckline has broken.

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